The importance of international trade credit for industry investment

Sarah Carroll and Rebecca Neumann

Journal of Economics and Business, 2022, vol. 122, issue C, No S0148619522000388

Abstract: Trade credit is an important feature of many trade contracts, offering buyers a means of financing purchases using credit from suppliers. This paper aims to identify a channel through which international trade credit affects industry investment. We use an interaction variable approach, first implemented by Rajan and Zingales (1998), where industries are ranked by different propensities to use supplier credit according to their industry specific production properties. This ranking is interacted with measures of aggregate international trade credit at the country level to examine how industry investment responds to the availability of international trade credit. The dataset includes 23 manufacturing industries in 19 countries from 1999 to 2009. Controlling for industry output along with access to and dependence on domestic external finance, we show that industries with a higher propensity to use supplier credit benefit from greater international trade credit in terms of a higher investment share relative to economy-wide investment. The results suggest that relationship financing, as captured by international trade credit, is an important catalyst for industry investment for those firms that rely on supplier connections.

Keywords: Industry investment; Trade credit; Trade openness; Financial openness; International trade (search for similar items in EconPapers)
JEL-codes: F14 F30 F40 G23 L60 O5 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0148619522000388
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jebusi:v:122:y:2022:i:c:s0148619522000388

DOI: 10.1016/j.jeconbus.2022.106082

Access Statistics for this article

Journal of Economics and Business is currently edited by Emanuele Bajo and Moritz Ritter

More articles in Journal of Economics and Business from Elsevier
Bibliographic data for series maintained by Catherine Liu ().