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On the Causality between Trade Credits and Imports: Evidence and Possible Implication for Trade Penalties on Debt Defaults

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  • Yothin Jinjarak

Abstract

This study investigates the association between trade credits and imports of developing countries. Made available by its creditors, the main function of trade credits is to facilitate cross-border transactions of goods and services. This study finds that the reliance of imports on trade credits varies across regions and income: towards the end of the 1990s, the trade credits to imports ratio ranged from 0.20 for East Asia & the Pacific to 0.87 for Africa, and from 0.24 for high-income countries to 0.79 for low-income countries. Applying panel and cross-country estimation, we find that past trade credits help predict current imports, but past imports do not alter the future path of trade credits. Further, the positive association between trade credits and imports is larger for countries more dependent upon trade credits. The findings support the notion that countries make debt repayments to avoid any potential disruption on the line of trade credits. We also find that the trade credits penalty could materialize within less than two quarters.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Economic Journal.

Volume (Year): 21 (2007)
Issue (Month): 3 ()
Pages: 317-333

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Handle: RePEc:taf:intecj:v:21:y:2007:i:3:p:317-333

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Related research

Keywords: Debt repayment; international loans; trade finance;

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Cited by:
  1. Joshua Aizenman & Yothin Jinjarak & Donghyun Park, 2011. "Evaluating Asian Swap Arrangements," Governance Working Papers 23239, East Asian Bureau of Economic Research.
  2. Aizenman, Joshua & Jinjarak, Yothin & Park, Donghyun, 2011. "International reserves and swap lines: Substitutes or complements?," International Review of Economics & Finance, Elsevier, vol. 20(1), pages 5-18, January.
  3. Berman, Nicolas & Martin, Philippe, 2010. "The vulnerability of sub-Saharan Africa to the financial crisis: the case of trade," CEPR Discussion Papers 7765, C.E.P.R. Discussion Papers.
  4. Nicolas Berman & Philippe Martin, 2012. "The Vulnerability of Sub-Saharan Africa to Financial Crises: The Case of Trade," IMF Economic Review, Palgrave Macmillan, vol. 60(3), pages 329-364, September.

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