On the Causality between Trade Credits and Imports: Evidence and Possible Implication for Trade Penalties on Debt Defaults
2007; Taylor & Francis; Volume: 21; Issue: 3 Linguagem: Inglês
10.1080/10168730701568304
ISSN1743-517X
Autores Tópico(s)Global trade and economics
ResumoAbstract This study investigates the association between trade credits and imports of developing countries. Made available by its creditors, the main function of trade credits is to facilitate cross-border transactions of goods and services. This study finds that the reliance of imports on trade credits varies across regions and income: towards the end of the 1990s, the trade credits to imports ratio ranged from 0.20 for East Asia & the Pacific to 0.87 for Africa, and from 0.24 for high-income countries to 0.79 for low-income countries. Applying panel and cross-country estimation, we find that past trade credits help predict current imports, but past imports do not alter the future path of trade credits. Further, the positive association between trade credits and imports is larger for countries more dependent upon trade credits. The findings support the notion that countries make debt repayments to avoid any potential disruption on the line of trade credits. We also find that the trade credits penalty could materialize within less than two quarters. Keywords: Debt repaymentinternational loanstrade finance Acknowledgements The author would like to thank Joshua Aizenman, Swisa Ariyapruchya, James Rauch, and two anonymous referees for helpful comments and suggestions. Any remaining errors are the author's own. Notes 1There are two types of trade credits: (a) standard letter of credits (guaranteed payment to the exporter promptly after its good has been shipped); (b) standby letter of credits (guaranteed payment to the exporter after the importer fails to honor its obligations in the contract). See also USDOC Citation(2002) and Palmer Citation(1999). In a simple arrangement of international trade transactions, after a supplier contracts to supply goods to a foreign buyer, there is a parallel trade financing loan agreement in which a delegated bank lends on behalf of the supplier to the foreign buyer's bank. The loan is normally guaranteed by an export-credit agency of the supplier's country (and/or a lead bank, if the loan is syndicated). 2Calculated from the external debts statistics of the joint BIS-IMF-OECD-World Bank network, using the stock of trade credits as a percentage of consolidated total liabilities to banks (which are nationals of (i.e. headquartered in) industrial countries and report their claims on a worldwide consolidated basis, both short term and long term). 3Other considerations on repayment incentives include Eaton & Gersovitz Citation(1981), Ozler Citation(1993), and Kletzer & Wright Citation(2000). For analyses on contract enforcement in international trade, see Marin & Schnitzer Citation(2002), Greif Citation(1993), Greif et al. Citation(1994), and Dixit Citation(2003). For studies on the importance of commercial credits and finance in the context of comparative advantage in international trade, see Eaton Citation(1986), Kletzer & Bardhan Citation(1987), Beck Citation(2002), Klimenko Citation(2002), Svaleryd & Vlachos (Citation2002, Citation2005). 4An increase in bilateral trade of 1% is associated with an increase in bilateral lending (measured by international banking claims) of over 0.5% (Rose & Spiegel, Citation2002). 5See for example Baltagi Citation(2001) for a comprehensive survey on econometric issues surrounding dynamic panel data framework. 6Four semiannual periods were lost in constructing lags and taking first differences. Note that the econometric issues involving unbalanced panels are not relevant here because of T=5 for all countries in our sample. Given small T (length of time series) and large N (number of countries) of the sample, potential bias caused by non-stationary panels is also not major. See for example Phillips & Moon Citation(2000) for a simulation analysis on unit roots and co-integration in panel data where there are large N and large T. Further, Judson & Owen Citation(1999) show that GMM estimation on Equationequation (1) performs well for the dynamic panel data model when T<10. 7Holtz-Eakin et al. Citation(1988) provides derivation of the test. They show how linear constraints in the dynamic panel model can be tested in the conventional way by noting that the difference in the constrained and unconstrained sum of squared residuals has a χ2 distribution with degrees of freedom equal to the degrees of freedom of the unconstrained equation minus the degrees of freedom of the constrained equation. 8On trade and financial networks in international arena, see for example Rauch Citation(1999), Forbes & Chinn Citation(2004), and Portes & Rey Citation(2005). On financial crises and international, see Cline Citation(1987), Stephens Citation(1998), and Ma & Cheng Citation(2003). Current data limitation does not allow a direct test on the association between bilateral (or between other grouping of countries, i.e. G7 and emerging markets) trade volume and bilateral trade financing amount. In particular, the Joint External Debt Hub (JEDH) data by BIS, IMF, OECD, and World Bank does not provide trade credit data by creditor. The JEDH adds together the data from both creditor and borrower and reports the total trade credit amount by the borrowing country because the creditor countries provide only official and official guaranteed trade credits – even if it was provided, the creditors' trade credit data underestimates borrower data as they only cover official and officially guaranteed non-bank trade credits (please also see http://www.bis.org/publ/bispap13.pdf). Nevertheless, without testing directly on the bilateral relationship, which is not permitted by the data availability, we expect the main findings to continue to hold. Our reading from trade financing magazines (i.e. Trade & Forfaiting Review; http://www.tfreview.com/) suggests that in practice the lending banks follow standard monthly trade financing rates. These rates will guide the pricing of trade loans for both small, financial-center, and large trade lending banks, including those in industrial countries, such as Barclays, Citigroup, Sumitomo Mitsui, and HSBC.
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