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[2013-2] Analysis and Implication of Relationship between Trade Finance and Exports

Research Department 2013.02.28 1956
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   Since the global financial crisis, greater attention is being paid to trade finance, which has been identified as a factor in the weakening of exports, and fears have been aroused that exports could be even worse hit should trade finance contract still further because of new financial regulations. This paper draws on Korean data to conduct an empirical analysis of the determinants of trade finance together with its impact on exports.

   First of all, trade finance is found to have explanatory power for exports. In terms of the impact of trade finance on exports, that of trade finance between exporters and importers is analyzed as being greater than that of trade finance through by banks.

   Next, concerning the determinants of trade finance since the financial crisis, there is analyzed as being a factor at work in trade finance provided by banks that cannot be explained even after controlling for demand-side factors including export volumes and supply-side factors such as funding costs. This can be interpreted as showing the existence of a channel whereby an influence has been exercised on trade finance, in accordance with the deterioration of the availability of funds since the financial crisis due to some factors, including moves to strengthen capital and liquidity regulations on financial institutions. Trade finance between exporters and importers, although based on international transactions, meanwhile, is found to have characteristics similar to domestic trade credits, as demand-side factors are found to be significant, whereas supply-side factors such as funding costs are not found significant.