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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.

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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.

No: ERSD-2012-18

Authors:

Marc Auboin, World Trade Organization — Martina Engemann, University of Munich

Manuscript date: October 2012

Key Words:

trade credit, financial crisis, import estimation.

JEL classification numbers:

F13, F34, G21, G23

Disclaimer  back to top

This is a working paper, and hence it represents research in progress. This paper represents the opinions of the author, and is the product of professional research. It is not meant to represent the position or opinions of the WTO or its Members, nor the official position of any staff members. Any errors are the fault of the author. Copies of working papers can be requested from the divisional secretariat by writing to: Economic Research and Statistics Division, World Trade Organization, Rue de Lausanne 154, CH 1211 Geneva 21, Switzerland. Please request papers by number and title.

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