Trade Credit and Export: Evidence from China

Trade credit is an essential source of financing for exporters in developing countries. The paper examines the effect of trade credit on export using matched firm accounting and disaggregated export datasets. The paper shows that trade credit has a positive effect on the export volume of Chinese firms. The effect increases with the working capital cycle. It is larger for export to more distant countries and export shipped by transportation other than air, but it is independent of the financial development of the destination country. The paper finds that trade credit is used for the financing of working capital rather than directly of the trade itself. The results are robust to the inclusion of comprehensive sets of fixed effects, instrumentation, and alternative measurement of trade credit and bank finance. The results provide evidence on the role of alternative financing channels for China’s high economic growth.

This seminar is organised by the Erasmus Finance Group.