1. Comments on Tang and Wus Trade Credit Bank Credit and Financial Crises: The Case of Taiwan Andrew K. Rose UC Berkeley, CEPR and NBER

2. Part of an Ongoing Debate Massive trade collapse in Great Recession – Severe, sudden, synchronized (sectors, countries) – Bigger collapse than GDP Bigger than Great Depression (Eichengreen and ORourke) – Why? 2

3. Potential Explanations 1.Demand for manufacturing goods collapsed – Especially durables Alternatively inventories 2.Issues with supply chains – Perhaps a new normal? 3.(Artificial) Trade Frictions rose – Traditional Protectionism Evenett, Global Trade Alert – Alternatively: trade credit 3

4. Work on Trade Credit and Great Recession Much Evidence finds role for credit constraints reducing trade – Manova: credit constraints affect exports – Amiti and Weinstein: Japanese exporters most affected use banks most affected – Feenstra et al: more evidence on exports 4

5. Still, Much Dispute Most find small role for trade credit in collapse Alternative explanations work better – Alessandra et al – Levchenko et al – Eaton et al 5

6. Tang & Wu Contribute to Debate Innovations include: 1.Better data (firm-level panel) 2.Compare trade and bank credit Substitutes or Complements? A: Varies with recession – Complements in 2001; substitutes in 2008-09 3.Compare recessions 2001 dot-com vs. 2008-09 Great Recession 6

7. Lots of Strengths Great Motivation Terrific Literature Review Careful data work 7

8. Things I would do differently 1.Worry about Timing 2.Add Crisis 3.More Sensitivity Analysis 4.Miscellaneous Gripes 8

9. 1: Timing Issues Choice of 2008Q4 (not 2008Q3) seems critical, arbitrary, unwarranted When did the recession begin? 9

10. Taiwan Recession Began 2008Q3 10

11. Bumps in 2008Q4 (Little variation otherwise and … big excess supply of trade credit throughout) 11

12. Need to Choose Dates Carefully? Do we Have to Choose Crisis Dates at all? Instead: add comprehensive set of time effects, focus on those coefficients 12

13. 2: Add Asian Financial Crisis 2001, 200809 recessions relevant for Taiwan But Asian financial crisis of 1997-98? – (Taiwan mildly affected) – Sample of firms here starts in 1995! – Can add third (regional) crisis at cost of some firms 13

14. 3: Sensitivity Analysis If stick with current methodology, show insensitivity with respect to exact dates Alternative: use event-study on crises 14

15. 4: Miscellaneous Gripes 1.Simultaneity: arent bank credit and trade credit potentially driven by same phenomena? 2.How important are these firms in Taiwanese manufacturing? GDP? 3.Selection bias important? Only firms listed throughout; no entry/exit 4.Interpolation makes me nervous; so does removing extreme values (especially in crisis!) 5.Way too many digits/coefficients in tables 15

16. Generalizability Key Finding: 2001 and Great Recessions differ – Completely Plausible – But what about Future Recessions? – Idiosyncrasies reduce policy implications Is Taiwan special/unusual? 16