Financial Shocks, Customer Capital and the Trade Collapse of 2008-2009

Alok Johri and Terry Yip

Department of Economics Working Papers from McMaster University

Abstract: The collapse in trade relative to GDP during 2008-09 was unusually large and also puzzling relative to the predictions of canonical two-country models. In a calibrated model of customer capital where firms must acquire a customer base before any sales can occur, we show that credit shocks can cause a fall in the trade-GDP ratio equal to 43 percent of the observed value. The key mechanism involves a reallocation of scarce marketing resources from international to domestic customers, who are acquired more cheaply. Bayesian estimation shows that financial shocks are important in accounting for recent fluctuations in the trade-GDP ratio.

JEL-codes: E32 F41 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2015-09, Revised 2015-09
New Economics Papers: this item is included in nep-dge, nep-mac and nep-opm
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:mcm:deptwp:2015-13

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