TDPE presents: Prachi Mishra

Do Crises Have Lasting Effects on Trade? We explore country-level trade dynamics following past episodes of banking and debt crises. Using an augmented gravity model and 179 crisis episodes from 1970-2009, we find that there is a sharp decline in a country’s imports in the year following a crisis—14 percent, on average—and this decline is persistent, with imports remaining 12 percent below predicted, 5 years after the crisis. This is in addition to any import compression due to lower output, which the gravity model already controls for. In contrast, exports of the crisis country are not as adversely affected, and they remain close to the predicted level in both the short and medium-term. Prachi Mishra is an economist in the research department of the International Monetary Fund.  She is an expert on the political economy of trade, foreign aid, and the effect of trade and emigration on income distribution.  Her recent work has focused on the impact of economic crises on lobbying and trade.