Do Trade and Capital Flows Complement Each Other? Evidence from the Us Syndicated Loan Market
44 Pages Posted: 12 Dec 2005
Date Written: December 5, 2005
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 in-creases. 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
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