Mitigating information frictions in trade: Evidence from export credit guarantees

Natasha Agarwal, Jackie M.L. Chan, Magnus Lodefalk, Aili Tang, Sofia Tano and Zheng Wang

Journal of International Economics, 2023, vol. 145, issue C

Abstract: Information frictions make foreign trade risky. In particular, the risk of buyer default deters firms from selling abroad. To address this issue, many countries offer export credit guarantees to provide insurance to exporters. In this paper, we investigate the causal effects of guarantees by exploiting a quasi-natural experiment in Sweden and rich register data on guarantees, firms and trade. Estimates from a fuzzy regression discontinuity design show large positive effects on the probability of exporting and the value of exports to the destination for which the guarantees are issued. These results are robust to an alternative approach using a difference-in-differences matching estimator. Further findings suggest that guarantees impact firms heterogeneously and play an important role in resolving buyer default risk and easing liquidity constraints. Larger impacts are observed in non-OECD countries, on smaller, liquidity constrained exporters and for firms selling products that face a relatively high cost of buyer default.

Keywords: Information frictions; Buyer default; Liquidity constraints; Export credit guarantees; Trade; Firm performance (search for similar items in EconPapers)
JEL-codes: D22 D82 F14 G28 G32 H81 L25 (search for similar items in EconPapers)
Date: 2023
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Related works:
Working Paper: Mitigating Information Frictions in Trade: Evidence from Export Credit Guarantees (2021)
Working Paper: Mitigating Information Frictions in Trade: Evidence from Export Credit Guarantees (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:145:y:2023:i:c:s0022199623001174

DOI: 10.1016/j.jinteco.2023.103831

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