Abstract
This article finds that firms’ trade credit, the financing provided by upstream input suppliers along the supply chain, plays an important role in determining firms’ exportation. In a panel data set of manufacturing firms in 25 Eastern European and Central Asian countries between 2001 and 2007, we employ international trade cost shocks to identify the causal impacts of trade credit on firms’ exportation. We find that when trade costs decline, firms with less trade credit increase their exports disproportionately more because of the alleviation of their financing burdens. Results are robust after controlling for bank and other financing channels, country financial development, and the endogeneity of trade credit. Our findings contribute to the empirical identification of financial frictions on firms’ exports and to the role of trade credit on firms’ performance.
Acknowledgements
Special thanks to Wenbiao Cai, Dan Lu, Chih-Ming Tan and seminar participants. All errors are mine.
Notes
1 Twenty-five countries are Albania, Armenia, Azerbaijan, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Czech, Estonia, Georgia, Hungary, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Moldova, Poland, Romania, Russia, Slovak, Slovenia, Tajikistan, Turkey, Ukraine and Uzbekistan. Eleven manufacturing industries include food, textiles, garments, chemicals, plastics and rubber, nonmetallic mineral products, basic metals, fabricated metal products, machinery and equipment, electronics, and other manufacturing industries.
2 Results are robust if using total factor productivity but the number of observations is reduced by 60% because of missing capital.
3 Assume in Equation (1) follows a distribution , .
4 Due to data limitation, the dummy of financing from buyers is for firms’ general sales.