Do Trade and Capital Flows Complement Each Other? Evidence from the US Syndicated Loan Market
30 Pages Posted: 6 Apr 2019
Date Written: January 14, 2010
Abstract
We empirically test the hypothesis that trade flows and debt flows complement each other as argued by Rajan and Zingales (2003). Using a dataset of loans made to U.S. borrowers, we find that the probability of a foreign bank participation in a loan increases as the bilateral trade between the US and the lender’s country increases. We also find that as a foreign country imports more from the U.S. in the borrowing firm’s industry, the probability of a bank from that country participating in the loan increases. On the contrary, an increase in exports by a foreign country to U.S. decreases the probability of a bank from that country participating in the loan.
Keywords: trade flows, capital flows, syndicated loans, foreign banks
JEL Classification: F14, F34
Suggested Citation: Suggested Citation