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How Trade Credits Foster International Trade

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  • Eck, Katharina
  • Engemann, Martina
  • Schnitzer, Monika

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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Bibliographic Info

Paper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 379.

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Date of creation: Apr 2012
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Handle: RePEc:trf:wpaper:379

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

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References

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  1. Gorodnichenko, Yuriy & Schnitzer, Monika, 2010. "Financial constraints and innovation: Why poor countries don't catch up," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7721, C.E.P.R. Discussion Papers.
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  3. Mirabelle Muûls & Mauro Pisu, 2007. "Imports and Exports at the Level of the Firm: Evidence from Belgium," CEP Discussion Papers dp0801, Centre for Economic Performance, LSE.
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  9. Schnitzer, Monika & Buch, Claudia M. & Kesternich, Iris & Lipponer, Alexander, 2010. "Exports Versus FDI Revisited: Does Finance Matter," Munich Reprints in Economics, University of Munich, Department of Economics 19883, University of Munich, Department of Economics.
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  15. G. Steven Olley & Ariel Pakes, 1992. "The Dynamics of Productivity in the Telecommunications Equipment Industry," NBER Working Papers 3977, National Bureau of Economic Research, Inc.
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Cited by:
  1. Mateut, Simona & Zanchettin, Piercarlo, 2013. "Credit sales and advance payments: Substitutes or complements?," Economics Letters, Elsevier, Elsevier, vol. 118(1), pages 173-176.

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