Trade spillovers on output growth during the 2008 financial crisis

This paper gives an empirical assessment of the extent to which a financial crash in a country can slowdown the domestic economic growth and how these effects can spread through trade relationships. First, we modify the Cerra and Saxena׳s (2008) methodology in order to understand the interplay between economic activity and foreign trade during the 2008 financial crisis. Our sample is made of monthly data for 26 countries over 1993–2013. We then simulate the dynamic responses of domestic activity to a demand shock and to a financial crisis. Trade contributes to growth in the context of a demand shock (from 63% for developing countries to 433% for NAFTA) whereas it dampens output loss in the context of the 2008 financial crisis (from −38% for developing countries to −127% for NAFTA).