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WTO Working Papers

WTO working papers usually represent research in progress. Such research may be conducted in the preparation of WTO Secretariat reports, studies or other material for WTO members. The papers are circulated for comment because the WTO considers critical review of professional research to be extremely important.

English

Testing the Trade Credit and Trade Link

Evidence from Data on Export Credit Insurance

Trade finance has received special attention during the financial crisis as one of the potential culprits for the great trade collapse. Several researchers have used micro level data to establish the link between trade finance and trade, especially so during the financial crisis, and have found diverting results. This paper analyses the effect of trade credit on trade on a macro level through a whole cycle. We employ Berne Union data on export credit insurance, the most extensive dataset on trade credits available at the moment, for the period of 2005--2011-. Using an instrumentation strategy we can identify a significantly positive effect of insured trade credit, as a proxy for trade credits, on trade. The effect of insured trade credit on trade is very strong and remains stable over the cycle, not varying between crisis and non-crisis periods.

English

Keywords: financial crisis, import estimation, trade credit
JEL: G21: Financial Economics / Financial Institutions and Services / Banks; Depository Institutions; Micro Finance Institutions; Mortgages; F34: International Economics / International Finance / International Lending and Debt Problems; F13: International Economics / Trade / Trade Policy; International Trade Organizations; G23: Financial Economics / Financial Institutions and Services / Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors
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