DDI_WLD_2006_BCE_v01_M 2010-09-08 NADA version 01 (September 2010) Banking Crisis and Exports 1980-2006 BCE 1980-2006 WLD_2006_BCE_v01_M Leonardo Iacovone (World Bank) and Veronika Zavacka (Graduate Institute for International and Development Studies) NADA Development Research Group For the first time since 1982, in 2009, global trade flows will not grow. According to the latest IMF projections global trade in goods and services is expected to drop by 11% during 2009 and to stagnate in year 2010. The recent collapse in exports following the unfolding of the financial crisis has generated new pressing questions about the relationship between banking crises and exports growth. Are the supply shocks due to the collapse in the banking system responsible for the falls in exports? Or is what we observe completely attributable to the demand side where we have also observed unprecedented drops particularly in developed countries? In Iacovone and Zavacka (2009) we explore these questions using data, below, from 23 past banking crises episodes involving both developed and developing countries during 1980-2000. World Aggregate data [agg] The dataset includes indicators related to: - Export - Export growth rate - Banking crisis - External finance dependence - Dependence on trade credit - Tangibility - Financial institution assets - Stock market capitalization - Private credit - Trade - GDP loss during crisis - Real GDP per capita - Blanket guarantee - Liquidity support - Forbearance - Recapitalizations - Debt relief - Recession - Real gdp growth - Inventories/sales - Cash conversion cycle - External finance dependence - Capital/labor - R&D intensity - Product homogeneity Other [oth] Exports data, from UN Comtrade, are disaggregated at 4 digits ISIC Rev 2 and cover the period 1980 to 2006. There are 81 industries at this level of disaggregation, however, not all countries have exported in all industries and years and therefore the resulting panel is unbalanced with the number of observations slightly above 30000. The information on banking crises is obtained from Dell'Ariccia, Detragiache, and Rajan (2008) who identify 48 episodes of systemic financial crises in both developed and developing countries. Because we are only interested in the effect of pure banking crises we exclude all \twin crises" when a currency crisis occurred jointly with the banking crisis. The rationale for this exclusion is that we want to isolate the credit crunch channel from balance sheet effects. During twin crises, when large devaluations occur, firms with high exposure to foreign debt will be hit particularly hard. If these firms are also the firms highly dependent on external finance, the effect of the crisis on exporters that we observe might be a consequence of their own balance sheet problems rather than a consequence of the credit crunch due to the banking crisis. Finally, out of the remaining 32 crisis episodes we only have disaggregated trade data for 23 crises in 21 countries. We use Dell'Ariccia, Detragiache, and Rajan's (2008) database to identify the start of the crisis but in the estimations the financial crisis dummy is actually a \crisis window". This is equal to 1 if country if faces a financial crisis in year t as well as in the two following years .The reason of using a crisis window is because we are not only interested in the immediate short run effects of the crisis but also its medium-term effects. Furthermore, given the lumpiness of certain investments it is possible that the impact of the credit crunch due to the crisis may emerge with a lag as firms do not have to finance investment continuously. Use of the dataset must be acknowledged using a citation which would include: - the Identification of the Primary Investigator - the title of the survey (including acronym and year of implementation) - the survey reference number - the source and date of download Example: Leonardo Iacovone and Veronika Zavacka. Banking Crisis and Exports (BCE) 1980-2006. Ref. WLD_2006_BCE_v01_M. Dataset downloaded from http://microdata.worldbank.org on [date]. The user of the data acknowledges that the original collector of the data, the authorized distributor of the data, and the relevant funding agency bear no responsibility for use of the data or for interpretations or inferences based upon such uses. FinalDataset Exports data, from UN Comtrade, are disaggregated at 4 digits ISIC Rev 2 and cover the period 1980 to 2006. There are 81 industries at this level of disaggregation, however, not all countries have exported in all industries and years and therefore the resulting panel is unbalanced with the number of observations slightly above 30000. The information on banking crises is obtained from Dell'Ariccia, Detragiache, and Rajan (2008) who identify 48 episodes of systemic financial crises in both developed and developing countries. Because we are only interested in the effect of pure banking crises we exclude all \twin crises" when a currency crisis occurred jointly with the banking crisis. The rationale for this exclusion is that we want to isolate the credit crunch channel from balance sheet effects. During twin crises, when large devaluations occur, firms with high exposure to foreign debt will be hit particularly hard. If these firms are also the firms highly dependent on external finance, the effect of the crisis on exporters that we observe might be a consequence of their own balance sheet problems rather than a consequence of the credit crunch due to the banking crisis. Finally, out of the remaining 32 crisis episodes we only have disaggregated trade data for 23 crises in 21 countries. We use Dell'Ariccia, Detragiache, and Rajan's (2008) database to identify the start of the crisis but in the estimations the financial crisis dummy is actually a \crisis window". This is equal to 1 if country if faces a financial crisis in year t as well as in the two following years .The reason of using a crisis window is because we are not only interested in the immediate short run effects of the crisis but also its medium-term effects. Furthermore, given the lumpiness of certain investments it is possible that the impact of the credit crunch due to the crisis may emerge with a lag as firms do not have to finance investment continuously. 39588 44 Reporter Reporter Reporter Reporter Reporter 39588 ARG BOL COL CRI FIN IDN ITA JOR JPN LKA MEX MYS NGA NOR NPL PAN PHL PNG PRT SWE TUN USA Year Year Year Year Year 39588 1980 2006 Product Product Product Product Product 39588 3111 3909 Total value of exports(thousands USD) Total value of exports(thousands USD) Total value of exports(thousands USD) Total value of exports(thousands USD) Total value of exports(thousands USD) 39588 1 136029777.555 840004.573 4286242.227 Share of the industry in total exports in t-3 Share of the industry in total exports in t-3 Share of the industry in total exports in t-3 Share of the industry in total exports in t-3 Share of the industry in total exports in t-3 35472 4116 4.28e-09 0.952 0.0138 0.0418 The trade share is the share of industry exports in total exports lagged three periods. Export growth rate (log difference) Export growth rate (log difference) Export growth rate (log difference) Export growth rate (log difference) Export growth rate (log difference) 37596 1992 -8.566 8.631 0.105 0.787 Trimmed growth rate (5% at each tail) Trimmed growth rate (5% at each tail) Trimmed growth rate (5% at each tail) Trimmed growth rate (5% at each tail) Trimmed growth rate (5% at each tail) 33862 5726 -1.527 1.523 0.0985 0.339 Banking crisis dummy Banking crisis dummy Banking crisis dummy Banking crisis dummy Banking crisis dummy 39480 108 1 Sysmiss The crisis dummy equals to one in the year of the crisis and in the first and second year after the crisis and is zero otherwise. Banking crisis - 3 year window Banking crisis - 3 year window Banking crisis - 3 year window Banking crisis - 3 year window Banking crisis - 3 year window 39588 1 Twin crisis Twin crisis Twin crisis Twin crisis Twin crisis 37843 1745 1 Sysmiss Twin crises is when a currency crisis occurred jointly with the banking crisis. External finance dependence (Rajan, Zingales 1998) External finance dependence (Rajan, Zingales 1998) External finance dependence (Rajan, Zingales 1998) External finance dependence (Rajan, Zingales 1998) External finance dependence (Rajan, Zingales 1998) 38111 1477 -0.45 1.49 0.309 0.326 RZ is the measure of external dependence. The measure of external finance dependence is based on data of listed US companies provided in Compustat and obtained from Rajan and Zingales (1998). They compute the proxy as a fraction of capital expenditures that an industry is not able to finance with internal funds. To construct it they first compute the median of all firms in each sector and year and then they average the sectoral measures over the entire period of 1980-89. Dependence on trade credit (Fisman, Love 2003) Dependence on trade credit (Fisman, Love 2003) Dependence on trade credit (Fisman, Love 2003) Dependence on trade credit (Fisman, Love 2003) Dependence on trade credit (Fisman, Love 2003) 38111 1477 0.055 0.149 0.0903 0.0171 FL is a measure of dependence on trade credit. The measure of trade credit dependence is obtained from Fisman and Love (2003) who define it as the ratio of accounts payable in total assets. Similarly to Rajan and Zingales (1998) they base their measure on US data from Compustat. Tangibility (Kroszner, Laeven, Klingebiel 2007) Tangibility (Kroszner, Laeven, Klingebiel 2007) Tangibility (Kroszner, Laeven, Klingebiel 2007) Tangibility (Kroszner, Laeven, Klingebiel 2007) Tangibility (Kroszner, Laeven, Klingebiel 2007) 38111 1477 0.12 0.62 0.299 0.11 TANG is defined as tangibility. The tangibility obtained from Kroszner, Laeven, and Klingebiel (2007) measure uses the same procedure and data and is defined as the ratio of the book values of property, plant and equipment in total assets. OTHER FINANCIAL INSTITUTIONS ASSETS / GDP OTHER FINANCIAL INSTITUTIONS ASSETS / GDP OTHER FINANCIAL INSTITUTIONS ASSETS / GDP OTHER FINANCIAL INSTITUTIONS ASSETS / GDP OTHER FINANCIAL INSTITUTIONS ASSETS / GDP 15857 23731 3.99e-05 1.557 0.302 0.38 PRIVATE CREDIT BY DEPOSIT MONEY BANKS AND OTHER FINANCIAL INSTITUTIONS / GDP PRIVATE CREDIT BY DEPOSIT MONEY BANKS AND OTHER FINANCIAL INSTITUTIONS / GDP PRIVATE CREDIT BY DEPOSIT MONEY BANKS AND OTHER FINANCIAL INSTITUTIONS / GDP PRIVATE CREDIT BY DEPOSIT MONEY BANKS AND OTHER FINANCIAL INSTITUTIONS / GDP PRIVATE CREDIT BY DEPOSIT MONEY BANKS AND OTHER FINANCIAL INSTITUTIONS / GDP 37844 1744 0.0447 2.006 0.628 0.436 Financial development is computed as private credit in GDP. STOCK MARKET CAPITALIZATION / GDP STOCK MARKET CAPITALIZATION / GDP STOCK MARKET CAPITALIZATION / GDP STOCK MARKET CAPITALIZATION / GDP STOCK MARKET CAPITALIZATION / GDP 31141 8447 0.000635 2.824 0.44 0.491 Trade weighted recession abroad Trade weighted recession abroad Trade weighted recession abroad Trade weighted recession abroad Trade weighted recession abroad 39588 1 0.148 0.205 Trade weighted GDP growth abroad Trade weighted GDP growth abroad Trade weighted GDP growth abroad Trade weighted GDP growth abroad Trade weighted GDP growth abroad 39588 -30.078 37.423 2.483 2.182 1 if durable, 0 otherwise 1 if durable, 0 otherwise 1 if durable, 0 otherwise 1 if durable, 0 otherwise 1 if durable, 0 otherwise 39588 1 GDP loss during crisis (linear trend) GDP loss during crisis (linear trend) GDP loss during crisis (linear trend) GDP loss during crisis (linear trend) GDP loss during crisis (linear trend) 39588 -0.211 0.674 0.00565 0.0527 The loss is defined as the deviation of the predicted GDP from actual GDP over actual GDP. Either linear or quadratic trend is used for prediction. GDP loss during crisis (quadratic trend) GDP loss during crisis (quadratic trend) GDP loss during crisis (quadratic trend) GDP loss during crisis (quadratic trend) GDP loss during crisis (quadratic trend) 39588 -0.258 0.217 0.00054 0.0395 The loss is defined as the deviation of the predicted GDP from actual GDP over actual GDP. Either linear or quadratic trend is used for prediction. Real GDP per capita (USD) Real GDP per capita (USD) Real GDP per capita (USD) Real GDP per capita (USD) Real GDP per capita (USD) 39588 142.847 41440.828 10456.79 11728.643 Dummy=1 if developed, 0 otherwise Dummy=1 if developed, 0 otherwise Dummy=1 if developed, 0 otherwise Dummy=1 if developed, 0 otherwise Dummy=1 if developed, 0 otherwise 39588 1 (mean) developing (mean) developing (mean) developing (mean) developing (mean) developing 39588 1 Blanket guarantee Blanket guarantee Blanket guarantee Blanket guarantee Blanket guarantee 24735 14853 1 Sysmiss Liquidity support Liquidity support Liquidity support Liquidity support Liquidity support 24735 14853 1 Sysmiss Forbearance A Forbearance A Forbearance A Forbearance A Forbearance A 24735 14853 1 Sysmiss Forbearance of type A allows insolvent or illiquid banks to operate for 12 months. Forbearance B Forbearance B Forbearance B Forbearance B Forbearance B 24735 14853 1 Sysmiss Forbearance of type B means that either there is type A forbearance or some regulations are not enforced. Recapitalizations Recapitalizations Recapitalizations Recapitalizations Recapitalizations 24735 14853 1 Sysmiss The measure captures repeated recapitalizations as zero-one dummies. Debt relief Debt relief Debt relief Debt relief Debt relief 24735 14853 1 Sysmiss The measure captures government sponsored debt relief for corporate or private borrowers as zero-one dummies. Policy total Policy total Policy total Policy total Policy total 24735 14853 1 2 3 4 5 Sysmiss The policy total variable adds the dummies and gives the number of policies that have been implemented during each crisis Recession at home dummy Recession at home dummy Recession at home dummy Recession at home dummy Recession at home dummy 39588 1 Real gdp growth % Real gdp growth % Real gdp growth % Real gdp growth % Real gdp growth % 39588 -13.452 18.665 3.431 3.492 Inventories/sales Inventories/sales Inventories/sales Inventories/sales Inventories/sales 38258 1330 0.0526 0.407 0.168 0.0633 INVSA is from Raddatz (2006). It is defined as inventories to sales and is meant to capture short term financial needs intended to cover mainly the working capital. Cash conversion cycle Cash conversion cycle Cash conversion cycle Cash conversion cycle Cash conversion cycle 38258 1330 0.19 1.99 1.045 0.406 CCC is from Raddatz (2006). It is defined as cash conversion cycle and is meant to capture short term nancial needs intended to cover mainly the working capital. External finance dependence, young firms External finance dependence, young firms External finance dependence, young firms External finance dependence, young firms External finance dependence, young firms 37081 2507 -1.53 2.06 0.66 0.602 RZ young is a measure of external dependence based on Rajan, Zingales (1998) calculated as fraction of capital expenditures not funded by internal funds computed for firms listed for less than 10 years. Ext. fin. dep. non-crisis countries Ext. fin. dep. non-crisis countries Ext. fin. dep. non-crisis countries Ext. fin. dep. non-crisis countries Ext. fin. dep. non-crisis countries 38111 1477 -0.25 1.55 0.128 0.278 RZ non crisis is based on Kroszner, Laeven, and Klingebiel (2007) who compute the same measure based only on data of countries that have never experienced a financial crisis. Capital/labor Capital/labor Capital/labor Capital/labor Capital/labor 38111 1477 7.12 244.65 29.586 30.664 R&D intensity R&D intensity R&D intensity R&D intensity R&D intensity 38111 1477 0.58 0.0278 0.0681 Product homogeneity Product homogeneity Product homogeneity Product homogeneity Product homogeneity 30351 9237 1 Sysmiss Number of intermediates (Cowan and Neut) Number of intermediates (Cowan and Neut) Number of intermediates (Cowan and Neut) Number of intermediates (Cowan and Neut) Number of intermediates (Cowan and Neut) The share of 20 largest intermediates together with Herfindahl index is capturing the complexity of a product. 37268 2320 0.403 1.729 1.148 0.308 Herfindahl index of intermediate use (Cowan and Neut) Herfindahl index of intermediate use (Cowan and Neut) Herfindahl index of intermediate use (Cowan and Neut) Herfindahl index of intermediate use (Cowan and Neut) Herfindahl index of intermediate use (Cowan and Neut) The Herfindahl index toghether with n is capturing the complexity of a product. 37268 2320 0.352 4.16 0.805 0.556 Intermediate use/Output (Cowan and Neut) Intermediate use/Output (Cowan and Neut) Intermediate use/Output (Cowan and Neut) Intermediate use/Output (Cowan and Neut) Intermediate use/Output (Cowan and Neut) 37268 2320 0.611 1.503 1.026 0.155 Contagious crisis dummy Contagious crisis dummy Contagious crisis dummy Contagious crisis dummy Contagious crisis dummy 39588 1