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Credit Chain and Sectoral Comovement: A Multi-Region Investigation

Author

Listed:
  • Lee, Hsiao-Hui

    (National Chengchi University)

  • Yang, S. Alex

    (London Business School)

  • Zhang, Yuxuan

    (University of International Business and Economics)

  • Kim, Kijin

    (Asian Development Bank)

Abstract

This paper empirically examines how sectoral comovements arecorrelated with trade credit usage in a multi-region setting. Extending the models in Shea (2002) and Raddatz (2010), we develop a framework that captures the impact of trade credit usage on comovement between sectors within an economy and across economies separately. Using the Multi Regional Input-Output Table developed by the Asian Development Bank, we assemble a dataset consisting of 14 manufacturing industries for 53 economies. We provide empirical evidence that trade credit linkage is an influential channel for both the domestic and cross-border shocks to propagate and create a more profound impact on industries around the globe. We find that the impact of domestic credit chains on sectoral comovement is twice as strong as that of the international ones. We further examine the time trend of this relationship and find that, from 2000 to 2018, the positive relationship between the intensity of trade credit usage and sectoral correlation decreases. We posit that this could be due to more diversified global trade pattern changes during these two decades.

Suggested Citation

  • Lee, Hsiao-Hui & Yang, S. Alex & Zhang, Yuxuan & Kim, Kijin, 2021. "Credit Chain and Sectoral Comovement: A Multi-Region Investigation," ADB Economics Working Paper Series 640, Asian Development Bank.
    • Handle: RePEc:ris:adbewp:0640
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    trade credit; credit chain; sectoral comovement; input-output table; systemic risk;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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