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

Abstract The paper examines the impact of trade credit on cyclical fluctuations in international trade. It provides new empirical evidence based firm-level UK and Irish data showing that exporters use more actively intensively than non-exporters. study introduces inter-firm lending into an open economy general equilibrium model with heterogeneous firms endogenous entry exports market. demonstrates amplifies macroeconomic shocks both along intensive extensive margins it significantly contributes to high income elasticity observed data.