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

Anna Watson ()
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Anna Watson: University of Cambridge

Eurasian Economic Review, 2021, vol. 11, issue 4, No 6, 687-733

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.

Keywords: Trade credit; International trade; Business cycle fluctuations; Trade income elasticity (search for similar items in EconPapers)
JEL-codes: E32 E51 F41 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s40822-021-00178-1

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