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How Trade Credits Foster International Trade

Author

Listed:
  • 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.

Suggested Citation

  • Katharina Eck & Martina Engemann & Monika Schnitzer, 2012. "How Trade Credits Foster International Trade," Working Papers 116, Bavarian Graduate Program in Economics (BGPE).
  • Handle: RePEc:bav:wpaper:116_eckengemannschnitzer
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    File URL: http://www.bgpe.de/texte/DP/116_EckEngemannSchnitzer.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Auboin, Marc & Engemann, Martina, 2013. "Trade finance in periods of crisis: What have we learned in recent years?," WTO Staff Working Papers ERSD-2013-01, World Trade Organization (WTO), Economic Research and Statistics Division.
    2. Mateut, Simona & Zanchettin, Piercarlo, 2013. "Credit sales and advance payments: Substitutes or complements?," Economics Letters, Elsevier, vol. 118(1), pages 173-176.
    3. Auboin, Marc & DiCaprio, Alisa, 2016. "Why do trade finance gaps persist: Does it matter for trade and development?," WTO Staff Working Papers ERSD-2017-01, World Trade Organization (WTO), Economic Research and Statistics Division.

    More about this item

    Keywords

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

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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