How Trade Credits Foster International Trade

55 Pages Posted: 25 May 2012

See all articles by Katharina Eck

Katharina Eck

affiliation not provided to SSRN

Martina Engemann

University of Munich/LMU

Monika Schnitzer

University of Munich - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: April 2012

Abstract

Internationally active firms rely intensively on trade credits even though they are considered particularly expensive. This phenomenon has been little explored so far. Our theoretical analysis shows that trade credits can alleviate financial constraints arising from asymmetric information because they serve as a quality signal and reduce the uncertainty related to international transactions. We use unique survey data on German enterprises to test the effect of the use of trade credits on firms' exporting and importing behavior, both at the extensive and intensive margins. Our results support the assertion that trade credits have a positive impact on firms' exporting and importing activities.

Keywords: BEEPS, export, financial constraints, import, international trade, trade credits

JEL Classification: F10, G30

Suggested Citation

Eck, Katharina and Engemann, Martina and Schnitzer, Monika, How Trade Credits Foster International Trade (April 2012). CEPR Discussion Paper No. DP8954. Available at SSRN: https://ssrn.com/abstract=2066327

Katharina Eck

affiliation not provided to SSRN

Martina Engemann

University of Munich/LMU ( email )

Akadmiestrasse 1
Munich, 80799
Germany

Monika Schnitzer

University of Munich - Department of Economics ( email )

Ludwigstrasse 28
Munich, D-80539
Germany
+49 89 2180 2217 (Phone)
+49 89 2180 2767 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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