Reshaping Global Trade: The Immediate and Long-Run Effects of Bank Failures

Abstract I show that a disruption to the financial sector can reshape patterns of global trade for decades. study first modern banking crisis originating in London 1866 and collect archival loan records link multinational banks headquartered there their lending abroad. Countries exposed bank failures immediately exported significantly less did not recover lost growth relative unexposed places. Their market shares within each destination also remained lower four Decomposing persistent market-share losses shows they primarily stem from lack extensive-margin growth, as financing shock caused importers source more new partnerships. Exporters producing substitutable goods, those with little access alternative forms credit, trading distant partners experienced losses, consistent existence sunk costs importance finance intermediating trade.