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How Trade Credits Foster International Trade

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

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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8954.

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Date of creation: Apr 2012
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Handle: RePEc:cpr:ceprdp:8954
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  2. Gorodnichenko, Yuriy & Schnitzer, Monika, 2010. "Financial Constraints and Innovation: Why Poor Countries Don't Catch Up," IZA Discussion Papers 4786, Institute for the Study of Labor (IZA).
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  13. Buch, Claudia M. & Kesternich, Iris & Lipponer, Alexander & Schnitzer, Monika, 2010. "Exports Versus FDI Revisited: Does Finance Matter?," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 340, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
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  15. Thomas Chaney, 2013. "Liquidity Constrained Exporters," NBER Working Papers 19170, National Bureau of Economic Research, Inc.
  16. 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.
  17. Ai, Chunrong & Norton, Edward C., 2003. "Interaction terms in logit and probit models," Economics Letters, Elsevier, vol. 80(1), pages 123-129, July.
  18. Martin Andersson & Hans Lööf & Sara Johansson, 2008. "Productivity and International Trade: Firm Level Evidence from a Small Open Economy," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 144(4), pages 774-801, December.
  19. JaeBin Ahn, 2011. "A Theory of Domestic and International Trade Finance," IMF Working Papers 11/262, International Monetary Fund.
  20. 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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