Intermediated Trade and Credit Constraints: The Case of Firm's Imports
42 Pages Posted: 30 Nov 2021
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Intermediated Trade and Credit Constraints: The Case of Firm's Imports
Intermediated Trade and Credit Constraints: The Case of Firm's Imports
Intermediated Trade and Credit Constraints: The Case of Firm's Imports
Abstract
We investigate if credit constraints introduce a degree of difference among firms in their mode of importing. First, we develop a simple theoretical framework highlighting the possible links between credit constraints and reliance on import intermediaries, and then use firm-level data from 66 countries to test the model’s predictions. The results show that credit-constrained firms exhibit a higher probability of importing their inputs using an intermediary, while unconstrained firms are more likely to import directly. Our results also establish that the impact of credit constraints on the probability of indirect importing is amplified for firms with a higher distance from their international sourcing network. Moreover, if firms face other types of frictions to import, then the probability that credit-constrained firms rely on intermediaries is estimated to be higher. Remarkably, credit rationing affects the probability of indirect importing no matter what the mode of exporting is.
Keywords: Firms' Import Mode, Trade Intermediaries, financial constraints
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