scholarly journals Trade credit, trade income elasticity and the international transmission of shocks

2021 ◽  
Author(s):  
Anna Watson
Keyword(s):  
International Trade ◽  
Open Economy ◽  
Trade Credit ◽  
Income Elasticity ◽  
Heterogeneous Firms ◽  
Firm Level ◽  
Macroeconomic Shocks ◽  
Cyclical Fluctuations ◽  
Irish Data ◽  
The Impact

AbstractThe 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.

Coping with Firms

2020 ◽  
pp. 293-326
Author(s):  
Jean-Philippe Robé
Keyword(s):  
Climate Change ◽  
Open Economy ◽  
Negative Externalities ◽  
Firm Level ◽  
Economic Decisions ◽  
World Power ◽  
The World ◽  
Full Picture ◽  
Accounting Rules ◽  
The Impact

The Chapter addresses the need to cope with firms as participants in the World Power System. « Agency theory » has led to biased firm governance. The bias extends to accounting rules which do not provide a full picture of the impact of a firm’s operations and actually prevents firms from adapting their ways to the requirements of today’s predicament. Addressing world issues such as climate change requires the making of decisions to change our ways of producing, travelling and consuming. In an open economy, the competition among large business firms derivatively leads to a race to the bottom among States to offer firms accommodating legal environments. This limits the States’ ability to internalize negative externalities and to redistribute income. Given the inherent defects of our divided State System, it is at the firm level that governmental rules must be developed so that firms consider the consequences of their activities to a larger extend than they do today. Economic decisions within organizations are made on the basis of the accounting of their operations. To change the decisions they make, we need to amend the ways organizations account for their operations.

scholarly journals Impact of Economic Policy Uncertainty on Trade Credit Provision: The Role of Social Trust

2020 ◽  
Vol 12 (4) ◽  
pp. 1601 ◽  
Author(s):  
Peng Liu ◽  
Daxin Dong
Keyword(s):  
Economic Policy ◽  
Fixed Effects ◽  
Trade Credit ◽  
Social Trust ◽  
Alternative Measure ◽  
Policy Uncertainty ◽  
Firm Level ◽  
Economic Policy Uncertainty ◽  
The Impact

This paper explores the impact of economic policy uncertainty (EPU) on trade credit while taking into account the interactive role of social trust. The analysis is based on the panel data econometric model with fixed effects. Using firm-level data across 16 economies from 1995Q1 to 2015Q1, we find that (i) there exists a negative and highly significant relationship between economic policy uncertainty and the provision of trade credit; (ii) this relation is weaker for firms in countries with higher levels of social trust; and (iii) the effects of EPU and social trust are both more substantial for firms in more financially constrained industries. The impact of social trust is not a result of people’s high confidence in government, an effective legal system of enforcing contracts, a high-quality institutional system or an excellent system of protecting shareholders. Our result is robust if we exclude business cycle effects or use an alternative measure of financial constraints.

scholarly journals What is the Impact of Increased Business Competition?

2019 ◽  
Vol 2019 (276) ◽  
Author(s):  
Sonia Feliz ◽  
Chiara Maggi
Keyword(s):  
Heterogeneous Firms ◽  
Firm Dynamics ◽  
Demand Elasticity ◽  
Employment Decisions ◽  
Firm Level ◽  
Constant Elasticity ◽  
Constant Elasticity Of Substitution ◽  
Entry Time ◽  
Variable Markups ◽  
The Impact

This paper studies the macroeconomic effect and underlying firm-level transmission channels of a reduction in business entry costs. We provide novel evidence on the response of firms' entry, exit, and employment decisions. To do so, we use as a natural experiment a reform in Portugal that reduced entry time and costs. Using the staggered implementation of the policy across the Portuguese municipalities, we find that the reform increased local entry and employment by, respectively, 25% and 4.8% per year in its first four years of implementation. Moreover, around 60% of the increase in employment came from incumbent firms expanding their size, with most of the rise occurring among the most productive firms. Standard models of firm dynamics, which assume a constant elasticity of substitution, are inconsistent with the expansionary and heterogeneous response across incumbent firms. We show that in a model with heterogeneous firms and variable markups the most productive firms face a lower demand elasticity and expand their employment in response to increased entry.

Trade credit and the speed of leverage adjustment

2019 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ala’a Adden Abuhommous
Keyword(s):  
Trade Credit ◽  
Positive Impact ◽  
Bank Loans ◽  
Future Research ◽  
Short Term ◽  
Firm Level ◽  
Good Opportunity ◽  
Content Type ◽  
Leverage Ratio ◽  
The Impact

Purpose The purpose of this paper is to examine the impact of trade credit on the speed of adjustment (SOA) of short-term leverage. Bankruptcy cost is higher for over-levered firms, generating a good incentive to use trade credit as a lower cost substitute; hence, firms adjust capital more quickly. Design/methodology/approach Firm-level data are used from five countries, in two different economic orientations, during the period 2000–2017: bank-oriented economies include France, Germany and Japan, and market-oriented economies include the UK and the USA. First, using the two-step GMM the study estimates the target short-term leverage ratio. Then, it examines the impact of trade credit on the SOA of the actual leverage towards the target leverage ratio. Findings It finds a positive impact of a low amount of trade credit (high capacity) on the SOA for over-levered firms. This is in line with the substitution effect, where the bankruptcy cost is higher for over-levered firms, which leads them to substitute bank loans with trade credit. Research limitations/implications The study uses data from publicly traded firms; data from non-listed and small firms may be considered as a good opportunity for future research. Practical implications The policy implication that can be derived from the empirical results is that firms’ management should recognise the relationship between trade credit and deviation from target short-term leverage. During periods of high short-term leverage firms should use trade credit as a source of finance when adjusting the short-term leverage towards the target ratio. Originality/value This study is the first to examine the influence of trade credit on the SOA.

scholarly journals Changes in Between-Group Inequality: Computers, Occupations, and International Trade

2019 ◽  
Vol 11 (2) ◽  
pp. 348-400 ◽  
Author(s):  
Ariel Burstein ◽  
Eduardo Morales ◽  
Jonathan Vogel
Keyword(s):  
International Trade ◽  
Labor Productivity ◽  
Open Economy ◽  
Skill Premium ◽  
Computer Usage ◽  
And Shifts ◽  
Workforce Composition ◽  
The Impact ◽  
Direct Measures ◽  
Group Inequality

We provide a unifying framework to quantify the impact of several determinants of changes in US between-group inequality. We use an assignment framework with many labor groups, equipment types, and occupations in which changes in inequality are driven by changes in workforce composition, occupation demand, computerization, and labor productivity. We parameterize the model using direct measures of computer usage within labor group-occupation pairs and quantify the impact of each shock for various dimensions of between-group inequality between 1984 and 2003. We find, for example, that computerization and shifts in occupation demand jointly account for roughly 80 percent of the rise in the skill premium, with computerization alone accounting for roughly 60 percent. In an open-economy extension of the model, we show how computerization and changes in occupation demand can be caused by changes in the extent of international trade and perform counterfactual exercises to quantify these effects. (JEL D63, J16, J22, J23, J24, J31)

scholarly journals Misallocation in Open Economy

2021 ◽  
Vol 2021 (004) ◽  
pp. 1-38
Author(s):  
Maria D. Tito ◽  
◽  
Ruoying Wang ◽  
Keyword(s):  
Open Economy ◽  
Firm Heterogeneity ◽  
Empirical Relationship ◽  
Selection Effect ◽  
National Bureau ◽  
Firm Level ◽  
Labor Reallocation ◽  
Trade Shocks ◽  
Labor Inputs ◽  
The Impact

This paper estimates the impact of reducing export and import tariffs on firm input choices. In presence of borrowing constraints, lower export tariffs facilitate the reallocation of capital and labor inputs across firms, while a decline in import tariffs either tightens import competition or increases the availability of imported inputs; all three mechanisms suggest that a higher degree of openness should be associated with lower misallocation. To analyze the empirical relationship between openness and input misallocation, we draw on the annual surveys conducted by the Chinese National Bureau of Statistics (NBS) between 1998 and 2007. From the surveys, we con- struct firm-level measures of input misallocation that control for firm heterogeneity; we identify shocks to openness using industry tariff levels and firm trade shares. We find that firm facing higher tariffs in either import or export markets make less optimal input choices. We further decompose our analysis between input and output tariffs: our results suggest that the labor reallocation mainly occurs because of lower input tariffs, while the selection effect induced by changes in output tariffs does not necessarily cause more distorted firms to exit and, therefore, tends to have an insignificant effect on input allocation. Finally, we calculate the contribution of tariff changes towards aggregate misallocation and productivity: our results indicate that the impact of firm-level tariff reductions on aggregate misallocation and productivity was marginal in our sample period, but the presence of sizeable interactions between trade shocks and mis- allocation at the sector level suggests that our result should be interpreted as a lower bound of the overall effect.

South Africa’s International Trade

2021 ◽  
pp. 440-466
Author(s):  
Lawrence Edwards
Keyword(s):  
Open Economy ◽  
Global Economy ◽  
Import Substitution ◽  
Historical Context ◽  
Firm Level ◽  
Tariff Reform ◽  
Rise Of China ◽  
Tariff Liberalization ◽  
The Rise Of China ◽  
The Impact

This chapter uses South Africa’s integration in the global economy as a lens to understand the dynamics behind South Africa’s current economic performance. It first presents the historical context, commencing from the country’s position as a gold exporter pursuing an import substitution industrialization strategy, to its transition to a more open economy with the ending of sanctions and tariff liberalization from the early 1990s. The focus then shifts to a critical assessment of South Africa’s trade performance and trade policy in the post-apartheid period. This covers the impact of government policies, such as the multilateral tariff liberalization from 1994 to 2000, preferential tariff reform from 2000 and sector-driven industrial policy from 2007, as well as the dramatic changes in the global trading order—the rise of China from 2001, and the emergence of global value chains. To illustrate these relationships, the chapter draws on new insights using disaggregated product- and firm-level trade data.

scholarly journals International trade risk management under the impact of globalization

2021 ◽  
Vol 111 ◽  
pp. 01016
Author(s):  
Mariia Nezhyva ◽  
Olha Zaremba ◽  
Viktoriia Mysiuk
Keyword(s):  
Risk Management ◽  
International Trade ◽  
Open Economy ◽  
Management Plan ◽  
Business Environment ◽  
Economic Security ◽  
Doing Business ◽  
Risk Management Process ◽  
Assessment Approach ◽  
The Impact

Doing business in condition of international trade, a stable and competitive business environment is vital to operate efficiently and attract inward investment. Businesses can assess these factors alongside challenges such as corruption, political instability and terrorism to understand the strengths and weaknesses of an operating environment and for strategic investment decisions. In terms of open economy and globalization trends, business faced a lot of different challenges with their specific risks, hence an effective risk assessment approach and management is extremely vital for economic security of business and especially for all country doing business with other countries trying to succeed. The article presents risk management plan content that helps to structure business risk management process and provide with the measures how to deal with risks.

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