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Inter‐Firm Trade Finance in Times of Crisis

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  • Anna Maria C. Menichini

Abstract

The paper discusses the main features that distinguish inter-firm international trade finance from alternative sources of financing. On the one hand, inter-firm trade finance could help overcome informational problems associated with other lending relationships; on the other, it may contribute to propagate shocks due to the interconnection among firms along credit chains. The paper evaluates the potential effects of a financial crisis on the use of trade credit for firms operating in developing countries. It argues that while the advantages of trade credit might remain largely unexploited due to poor legal institutions, the disadvantages might be exacerbated because of these firms’ greater exposure to a default chain. Based on these arguments, a menu of choices is identified for what policymakers can do to boost firms’ access to inter-firm trade finance in times of crisis.
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Suggested Citation

  • Anna Maria C. Menichini, 2011. "Inter‐Firm Trade Finance in Times of Crisis," The World Economy, Wiley Blackwell, vol. 34(10), pages 1788-1808, October.
  • Handle: RePEc:bla:worlde:v:34:y:2011:i:10:p:1788-1808
    DOI: j.1467-9701.2011.01390.x
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    File URL: http://hdl.handle.net/10.1111/j.1467-9701.2011.01390.x
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    Cited by:

    1. Schmidt-Eisenlohr, Tim, 2013. "Towards a theory of trade finance," Journal of International Economics, Elsevier, vol. 91(1), pages 96-112.
    2. Türkcan Kemal & Avsar Veysel, 2016. "Investigating the Role of Contract Enforcement and Financial Costs on the Payment Choice: Industry-Level Evidence from Turkey," Global Economy Journal, De Gruyter, vol. 16(1), pages 135-160, March.
    3. Hazera Akter & Suborna Barua, 2016. "International trade financing: a comparative study on the performance of state-owned and private commercial banks of Bangladesh," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 9(2), pages 164-186.
    4. Andreas Hoefele & Tim Schmidt-Eisenlohr & Zhihong Yu, 2016. "Payment choice in international trade: Theory and evidence from cross-country firm-level data," Canadian Journal of Economics, Canadian Economics Association, vol. 49(1), pages 296-319, February.
    5. Kemal Turkcan, 2016. "Evolving Patterns of Payment Methods in Turkish Foreign Trade," World Journal of Applied Economics, WERI-World Economic Research Institute, vol. 2(1), pages 3-29, June.
    6. Independent Evaluation Group, 2013. "Evaluation of the International Finance Corporation's Global Trade Finance Program, 2006-12," World Bank Publications, The World Bank, number 15769.
    7. Escaith, Hubert, 2009. "Trade Collapse, Trade Relapse and Global Production Networks: Supply Chains in the Great Recession (revised)," MPRA Paper 31864, University Library of Munich, Germany, revised Jun 2011.

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