African exporters fall victim to the financial crisis

IGC commissioned research which looks at the effect of the current financial crisis has been profiled by the Africa@LSE blog, which can be read here.

As Europe struggles to resolve the Eurozone crisis, Philippe Martin and Nicolas Berman find that in sub-Saharan Africa, exporters have suffered the most. In relation to the current financial turmoil, they show that African countries are more vulnerable than other countries to financial crises that affect their trade partners. Indeed, this IGC research shows that previously African exports have been hit harder and longer by recessions and banking crises in countries to which they export. This is not only due to the composition of African exports and the concentration on primary goods.

In fact, the higher dependence of African exports on trade finance may explain this particular fragility of African exporters to a banking crisis in importer countries. For the average country, the disruption effect is moderate (a deviation from the gravity predicted trade of around 3 to 5%), but long lasting. It is apparent that the disruption effect is much larger for African exporters as the fall in trade (relative to gravity) is around 15 percentage points higher than for other countries in the aftermath of a banking crisis.

To read the full profile of this research project, click here.