Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/243404 
Year of Publication: 
2021
Series/Report no.: 
WIDER Working Paper No. 2021/78
Publisher: 
The United Nations University World Institute for Development Economics Research (UNU-WIDER), Helsinki
Abstract: 
We study the role of trade credit in enhancing the resilience of financially constrained firms from 2010 to 2017. Implicit borrowing in trade finance allows financially constrained firms to bridge the financing gap, expand employment by 8.26 per cent, and increase average firm profits significantly. Trade finance suppliers, not financially constrained firms, experience a surge of 7.99 per cent in the average rate of sales growth. Corporate resilience to financial constraints occasioned by trade credit is quite robust to controlling for relevant factors and employing various estimation techniques. While countries strive to develop their financial sector to fund economic activity and growth, they need to facilitate a business environment that promotes trade credit flows among firms as a second-best alternative to bank financing.
Subjects: 
financial constraints
trade credit
employment
firm profits
sales growth
JEL: 
E24
G32
L25
O5
Persistent Identifier of the first edition: 
ISBN: 
978-92-9267-016-0
Document Type: 
Working Paper

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