Trade credit during financial crises: Do negotiated agreements work?

This paper analyzes the role of trade credit in financial crises. Using newly collected data, we investigate the impact of negotiated agreements between debtor and creditor countries on bilateral trade. Our results indicate that exports to creditor countries rise considerably after debt restructuring agreements in the period 1980-1997, while we find no effect for imports and for the more recent period. We identify trade credit as one key channel behind this positive effect. Apparently, crisis resolution efforts, in particular agreements to extend and roll over trade credits, play a crucial role for export recoveries. This gives some support to current worldwide efforts to sustain trade financing via coordinated policy interventions.