How Trade Credits Foster International Trade

Internationally active firms rely intensively on trade credits even
though they are considered particularly expensive. This phenomenon
has been little explored so far. Our theoretical analysis shows
that trade credits can alleviate financial constraints arising from
asymmetric information because they serve as a quality signal and
reduce the uncertainty related to international transactions. We
use unique survey data on German enterprises to test the effect of
the use of trade credits on firms' exporting and importing
behavior, both at the extensive and intensive margins. Our results
support the assertion that trade credits have a positive impact on
firms' exporting and importing activities.