Comments on Tang and Wu’sTrade Credit Bank Credit and

Financial Crises:The Case of Taiwan

Andrew K. RoseUC Berkeley, CEPR and NBER

Part of an Ongoing Debate

• Massive trade collapse in Great Recession– Severe, sudden, synchronized (sectors, countries)– Bigger collapse than GDP• Bigger than Great Depression (Eichengreen and

O’Rourke)

– Why?

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Potential Explanations

1. Demand for manufacturing goods collapsed– Especially durables• Alternatively inventories

2. Issues with supply chains– Perhaps a new normal?

3. (Artificial) Trade Frictions rose– Traditional Protectionism• Evenett, Global Trade Alert

– Alternatively: trade credit

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Work on Trade Creditand Great Recession

• Much Evidence finds role for credit constraints reducing trade– Manova: credit constraints affect exports– Amiti and Weinstein: Japanese exporters most

affected use banks most affected– Feenstra et al: more evidence on exports

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Still, Much Dispute

• Most find small role for trade credit in collapse

• Alternative explanations work better– Alessandra et al– Levchenko et al– Eaton et al

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Tang & Wu Contribute to Debate

• Innovations include:1. Better data (firm-level panel)2. Compare trade and bank credit• Substitutes or Complements?• A: Varies with recession

– Complements in 2001; substitutes in 2008-09

3. Compare recessions• 2001 dot-com vs. 2008-09 Great Recession

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Lots of Strengths

• Great Motivation• Terrific Literature Review• Careful data work

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Things I would do differently

1. Worry about Timing2. Add Crisis3. More Sensitivity Analysis4. Miscellaneous Gripes

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1: Timing Issues

• Choice of 2008Q4 (not 2008Q3) seems critical, arbitrary, unwarranted

• When did the recession begin?

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Taiwan Recession Began 2008Q3

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Bumps in 2008Q4(Little variation otherwise and …

big excess supply of trade credit throughout)

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Need to Choose Dates Carefully?

• Do we Have to Choose Crisis Dates at all?• Instead: add comprehensive set of time

effects, focus on those coefficients

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2: Add Asian Financial Crisis

• 2001, 2008—09 recessions relevant for Taiwan

• But Asian financial crisis of 1997-98?– (Taiwan mildly affected)– Sample of firms here starts in 1995!– Can add third (regional) crisis at cost of some

firms

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3: Sensitivity Analysis

• If stick with current methodology, show insensitivity with respect to exact dates

• Alternative: use event-study on crises

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4: Miscellaneous Gripes

1. Simultaneity: aren’t bank credit and trade credit potentially driven by same phenomena?

2. How important are these firms in Taiwanese manufacturing? GDP?

3. Selection bias important? Only firms listed throughout; no entry/exit

4. Interpolation makes me nervous; so does removing extreme values (especially in crisis!)

5. Way too many digits/coefficients in tables

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Generalizability

• Key Finding: 2001 and Great Recessions differ– Completely Plausible– But what about Future Recessions?– Idiosyncrasies reduce policy implications

• Is Taiwan special/unusual?

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