Trade Credit: Theory andEvidence for Emerging Economies and Developing Countries

doi:10.1596/1813-9450-10468

Publication:
Trade Credit: Theory andEvidence for Emerging Economies and Developing Countries

dc.contributor.author	Cull, Robert
dc.contributor.author	Goh, Chorching
dc.contributor.author	Xu, L. Colin
dc.date.accessioned	2023-06-26T14:59:18Z
dc.date.available	2023-06-26T14:59:18Z
dc.date.issued	2023-06-25
dc.description.abstract	Trade credit remains an important source of finance for firms in developing countries and many firms in developed countries, especially those that are young, small, or informationally opaque for other reasons. This paper summarizes the literature and explains the pervasiveness of trade credit, detailing its potential advantages over formal credit in terms of the information that buyers and sellers have about each other and their ability to monitor one another. Because it requires less formal contract enforcement, trade credit can be especially relevant where the rule of law and the legal system are weak. At the same time, reliance on information from social networks and informal institutional arrangements limits the scale of trade credit, and thus moderate improvements to formal enforcement can expand trade credit beyond social networks and enable customers to switch suppliers, which improves their credit terms. The patterns suggest a sweet spot or “Goldilocks” region where mid-size firms and those in countries at middling levels of development tend to rely relatively more heavily on trade credit than others. Going forward, detailed data on the relationship between suppliers and customers are crucial to enable more direct tests of theoretical predictions regarding trade credit.	en
dc.identifier	http://documents.worldbank.org/curated/en/099506206052337670/IDU08a2d9e7f005ef0429f0b4480ebf40dddcab3
dc.identifier.doi	10.1596/1813-9450-10468
dc.identifier.uri	https://openknowledge.worldbank.org/handle/10986/39922
dc.language	English
dc.language.iso	en
dc.publisher	World Bank, Washington, DC
dc.relation.ispartofseries	Policy Research Working Papers; 10468
dc.rights	CC BY 3.0 IGO
dc.rights	CC BY 3.0 IGO
dc.rights.holder	World Bank
dc.rights.uri	https://creativecommons.org/licenses/by/3.0/igo/
dc.rights.uri	https://creativecommons.org/licenses/by/3.0/igo/
dc.subject	FINANCIAL DEVELOPMENT AND GROWTH
dc.subject	ACCESS TO FINANCE
dc.subject	BANKING INSTITUTIONS
dc.subject	TRADE CREDIT
dc.subject	MEDIUM-SIZED FIRMS
dc.subject	INTERNATIONAL TRADE
dc.subject	PRIVATE SECTOR DEVELOPMENT
dc.title	Trade Credit	en
dc.title.subtitle	Theory andEvidence for Emerging Economies and Developing Countries	en
dc.type	Working Paper
dspace.entity.type	Publication
okr.crossref.title	Trade Credit: Theory andEvidence for Emerging Economies and Developing Countries
okr.date.disclosure	2023-06-05
okr.date.lastmodified	2023-06-05T00:00:00Z	en
okr.doctype	Policy Research Working Paper
okr.doctype	Publications & Research
okr.docurl	http://documents.worldbank.org/curated/en/099506206052337670/IDU08a2d9e7f005ef0429f0b4480ebf40dddcab3
okr.guid	099506206052337670
okr.identifier.docmid	IDU-8a2d9e7f-05ef-429f-b448-ebf40dddcab3
okr.identifier.doi	10.1596/1813-9450-10468
okr.identifier.doi	http://dx.doi.org/10.1596/1813-9450-10468
okr.identifier.externaldocumentum	34074950
okr.identifier.internaldocumentum	34074950
okr.identifier.report	WPS10468
okr.import.id	866
okr.imported	true	en
okr.language.supported	en
okr.pdfurl	http://documents.worldbank.org/curated/en/099506206052337670/pdf/IDU08a2d9e7f005ef0429f0b4480ebf40dddcab3.pdf	en
okr.topic	Finance and Financial Sector Development::Capital Markets and Capital Flows
okr.topic	Finance and Financial Sector Development::Access to Finance
okr.topic	Finance and Financial Sector Development::Banks & Banking Reform
okr.topic	International Economics and Trade::Globalization and Financial Integration
okr.unit	DECRG: Finance & Priv Sec Devt (DECFP)