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Trade credit, trade income elasticity and the international transmission of shocks

Published version
Peer-reviewed

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Authors

Abstract

Abstract: The paper examines the impact of trade credit on cyclical fluctuations in international trade. It provides new empirical evidence based on firm-level UK and Irish data showing that exporters use trade credit more actively and intensively than non-exporters. The study introduces inter-firm lending into an open economy general equilibrium model with heterogeneous firms and endogenous entry into the exports market. It demonstrates that trade credit amplifies the impact of macroeconomic shocks on international trade both along the intensive and extensive margins and that it significantly contributes to the high trade income elasticity observed in the data.

Description

Funder: Economic and Social Research Council; doi: http://dx.doi.org/10.13039/501100000269


Funder: Corpus Christi College, University of Cambridge; doi: http://dx.doi.org/10.13039/501100000591

Keywords

Original Paper, Trade credit, International trade, Business cycle fluctuations, Trade income elasticity, F41, E32, E51

Journal Title

Eurasian Economic Review

Conference Name

Journal ISSN

1309-422X
2147-429X

Volume Title

11

Publisher

Springer International Publishing