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How Trade Credits Foster International Trade

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  • Katharina Eck
  • Martina Engemann
  • Monika Schnitzer

Abstract

Internationally active firms rely intensively on trade credits even though they are considered particularly expensive. This phenomenon has been little explored so far. Our theoretical analysis shows that trade credits can alleviate financial constraints arising from asymmetric information because they serve as a quality signal and reduce the uncertainty related to international transactions. We use unique survey data on German enterprises to test the effect of the use of trade credits on firms' exporting and importing behavior, both at the extensive and intensive margins. Our results support the assertion that trade credits have a positive impact on firms' exporting and importing activities.

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File URL: http://www.bgpe.de/texte/DP/116_EckEngemannSchnitzer.pdf
File Function: First version, 2012
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Bibliographic Info

Paper provided by Bavarian Graduate Program in Economics (BGPE) in its series Working Papers with number 116.

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Length: 51 pages
Date of creation: Mar 2012
Date of revision:
Handle: RePEc:bav:wpaper:116_eckengemannschnitzer

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Web page: http://www.bgpe.de/
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Related research

Keywords: trade credits; international trade; financial constraints; export; import;

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References

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  1. Luis Araujo & Emanuel Ornelas, 2005. "Trust-Based Trade," IBMEC RJ Economics Discussion Papers 2005-08, Economics Research Group, IBMEC Business School - Rio de Janeiro.
  2. Mateut, Simona & Bougheas, Spiros & Mizen, Paul, 2006. "Trade credit, bank lending and monetary policy transmission," European Economic Review, Elsevier, vol. 50(3), pages 603-629, April.
  3. Alexander Vogel & Joachim Wagner, 2008. "Higher Productivity in Importing German Manufacturing Firms: Self-selection, Learning from Importing, or Both?," Working Paper Series in Economics 106, University of Lüneburg, Institute of Economics.
  4. Klapper, Leora & Laeven, Luc & Rajan, Raghuram, 2010. "Trade credit contracts," Policy Research Working Paper Series 5328, The World Bank.
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  7. Amiti, Mary & Weinstein, David E., 2009. "Exports and Financial Shocks," CEPR Discussion Papers 7590, C.E.P.R. Discussion Papers.
  8. Gorodnichenko, Yuriy & Schnitzer, Monika, 2010. "Financial constraints and innovation: Why poor countries don't catch up," CEPR Discussion Papers 7721, C.E.P.R. Discussion Papers.
  9. George S Olley & Ariel Pakes, 1992. "The Dynamics Of Productivity In The Telecommunications Equipment Industry," Working Papers 92-2, Center for Economic Studies, U.S. Census Bureau.
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  16. JaeBin Ahn, 2011. "A Theory of Domestic and International Trade Finance," IMF Working Papers 11/262, International Monetary Fund.
  17. Mirabelle Muûls & Mauro Pisu, 2007. "Imports and Exports at the Level of the Firm : Evidence from Belgium," Working Paper Research 114, National Bank of Belgium.
  18. Minetti, Raoul & Zhu, Susan Chun, 2011. "Credit constraints and firm export: Microeconomic evidence from Italy," Journal of International Economics, Elsevier, vol. 83(2), pages 109-125, March.
  19. Greenaway, David & Guariglia, Alessandra & Kneller, Richard, 2007. "Financial factors and exporting decisions," Journal of International Economics, Elsevier, vol. 73(2), pages 377-395, November.
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Cited by:
  1. Mateut, Simona & Zanchettin, Piercarlo, 2013. "Credit sales and advance payments: Substitutes or complements?," Economics Letters, Elsevier, vol. 118(1), pages 173-176.

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