The impact of debt crisis on export performance

University essay from Lunds universitet/Nationalekonomiska institutionen

Abstract: Abstract The purpose of this essay is to empirically examine the impact of euro debt crisis in Greece, Ireland, Italy, Portugal and Spain in terms of their trade patterns relative to the export performance of OECD countries. Panel data for 34 OECD countries are investigated with fixed effects within a gravity model framework for period 1992-2012. In such a way, the benchmark model of the paper contains the logarithmic value of economic mass, dummy variables of the GIIPS after the crisis year of 2008, and year dummies. The benchmark model shows that one percentage point increase in logarithmic mass gives approximately 1.07 percentage rise in exports, meaning that the larger the countries the larger their export volumes. Regarding the debt crisis effects on the GIIPS trade performance there is export decrease of 22%, and import decrease of 27% after the crisis. In addition, robustness checks illustrate that the economic mass effect hold approximately the same impact as in the benchmark model, but the GIIPS dummies crisis effects are negative and vary from 17% to 29% depending on the year of specification as the year of the crisis. Lastly, the benchmark model is robust to an EMU effect in view of the fact that a regression with a respective dummy variable gives insignificant coefficients.

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