Inter-Firm Trade Finance in Times of Crisis
Anna Maria C. Menichini
Università degli Studi di Salerno; University of Naples Federico II - CSEF - Center for Studies in Economics and Finance
November 4, 2009
World Bank Policy Research Working Paper, No. 5112
The paper discusses the main features that distinguish inter-firm international trade finance from alternative sources of financing. On the one hand, inter-firm trade finance could help overcome informational problems associated with other lending relationships; on the other, it may contribute to propagate shocks due to the interconnection among firms along credit chains. The paper evaluates the potential effects of a financial crisis on the use of trade credit for firms operating in developing countries. It argues that while the advantages of trade credit might remain largely unexploited due to poor legal institutions, the disadvantages might be exacerbated because of these firms’ greater exposure to a default chain. Based on these arguments, a menu of choices is identified for what policymakers can do to boost firms’ access to inter-firm trade finance in times of crisis.
Number of Pages in PDF File: 25
Keywords: trade finance, financial crisis
JEL Classification: G01, G32, G33, K22
Date posted: November 5, 2009
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