skip to content

Faculty of Economics

Journal Cover

Watson, A.

Trade Credit, Trade Income Elasticity and the International Transmission of Shocks

Eurasian Economic Review, accepted


Abstract: The paper examines the impact of trade credit on cyclical fluctuations in international trade. It provides new empirical evidence based on firm-level UK and Irish data showing that exporters use trade credit more actively and intensively than non-exporters. The study introduces inter-firm lending into an open economy general equilibrium model with heterogeneous firms and endogenous entry into the exports market. It demonstrates that trade credit amplifies the impact of macroeconomic shocks on international trade both along the intensive and extensive margins and that it significantly contributes to the high trade income elasticity observed in the data.

Keywords: Trade Credit, International Trade, Business Cycle Fluctuations, Trade Income Elasticity

JEL Codes: F41, E32, E51

Author links: Anna Watson  

Papers and Publications

Recent Publications

Carvalho, V. M., Nirei, M., Saito, Y. U. and Tahbaz-Salehi, A. Supply Chain Disruptions: Evidence from the Great East Japan Earthquake Quarterly Journal of Economics [2021]

Faraglia, E., Marcet, A., Oikonomou, R. and Scott, A. Government Debt management: the Short and the Long of it Review of Economic Studies [2019]

Agranov, M. and Elliott, M. Commitment and (in) Efficiency: A Bargaining Experiment Journal of the European Economic Association [2020]

Li, Z. M., Laeven, R. J. A. and Vellekoop, M. H. Dependent Microstructure Noise and Integrated Volatility: Estimation from High-Frequency Data Journal of Econometrics [2020]