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How Trade Credits Foster International Trade

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Author Info

  • 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. Davide Castellani & Francesco Serti & Chiara Tomasi, 2008. "Firms in International Trade: Importers and Exporters Heterogeneity in the Italian Manufacturing Industry," LEM Papers Series 2008/04, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
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  3. Klapper, Leora & Laeven, Luc & Rajan, Raghuram, 2010. "Trade credit contracts," Policy Research Working Paper Series 5328, The World Bank.
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  8. Simona MATEUT & Spiros BOUGHEAS & Paul MIZEN, 2003. "Trade Credit, Bank Lending and Monetary Policy Transmission," Economics Working Papers ECO2003/02, European University Institute.
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  17. 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.
  18. Alexander Vogel & Joachim Wagner, 2010. "Higher productivity in importing German manufacturing firms: self-selection, learning from importing, or both?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 145(4), pages 641-665, January.
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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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