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Inter-firm trade finance in times of crisis
 
Author:C. Menichini, Anna Maria; Collection Title:Policy Research working paper ; no. WPS 5112
Country:World; Date Stored:2009/11/04
Document Date:2009/11/01Document Type:Policy Research Working Paper
Language:EnglishRegion:The World Region
Report Number:WPS5112SubTopics:Bankruptcy and Resolution of Financial Distress; Access to Finance; Economic Theory & Research; Emerging Markets; Debt Markets
Volume No:1 of 1  

Summary: The paper discusses the main features that distinguish inter-firm international trade finance from alternative sources of financing. On the one hand, inter-firm trade finance could help overcome informational problems associated with other lending relationships; on the other, it may contribute to propagate shocks due to the interconnection among firms along credit chains. The paper evaluates the potential effects of a financial crisis on the use of trade credit for firms operating in developing countries. It argues that while the advantages of trade credit might remain largely unexploited due to poor legal institutions, the disadvantages might be exacerbated because of these firmsメ greater exposure to a default chain. Based on these arguments, a menu of choices is identified for what policymakers can do to boost firmsメ access to inter-firm trade finance in times of crisis.

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