Credit Chain and Sectoral Co-movement: A Multi-Region Investigation

36 Pages Posted: 4 Aug 2021

See all articles by Hsiao-Hui Lee

Hsiao-Hui Lee

National Chengchi University (NCCU) - Department of Management Information Systems

S. Alex Yang

London Business School

Yuxuan Zhang

University of International Business and Economics

Kijin Kim

Asian Development Bank - Economic Research and Regional Cooperation Department (ERCD)

Date Written: August 1, 2021

Abstract

This paper empirically examines how sectoral co-movement are correlated with trade credit usage in a multi-region setting. Extending the models in Shea (2002) and Raddatz (2010), we develop a framework that captures the impact of trade credit usage on co-movement between sectors within a country and cross countries separately. Using the Multi-Regional Input-Output Table developed by Asian Development bank, we assemble a dataset consisting of 14 manufacturing industries for 53 economies. We provide empirical evidence that trade credit linkage is an influential channel for both the domestic and cross-border shocks to propagate and to create a more profound impact in industries around the globe. We find the impact of domestic credit chain on sectoral co-movement is twice as strong as the international ones. We further examine the time trend of this relationship, and find that from 2000 to 2018, the positive relationship between the intensity of trade credit usage and sectoral correlation decreases. We posit that this could be due to a more diversified global trade pattern changes during these two decades.

Keywords: trade credit, credit chain, sectoral co-movement, Input-Output Table, systemic risk

Suggested Citation

Lee, Hsiao-Hui and Yang, S. Alex and Zhang, Yuxuan and Kim, Kijin, Credit Chain and Sectoral Co-movement: A Multi-Region Investigation (August 1, 2021). Available at SSRN: https://ssrn.com/abstract=3897212 or http://dx.doi.org/10.2139/ssrn.3897212

Hsiao-Hui Lee

National Chengchi University (NCCU) - Department of Management Information Systems ( email )

No. 64, Section 2, Zhǐnán Rd
Wenshan District
Taipei City
Taiwan

S. Alex Yang (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

HOME PAGE: http://faculty.london.edu/sayang/

Yuxuan Zhang

University of International Business and Economics ( email )

Beijing, 100191
China

Kijin Kim

Asian Development Bank - Economic Research and Regional Cooperation Department (ERCD) ( email )

Philippines

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