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Credit chains and sectoral comovemen t: does the use of trade credit amplify sectoral shocks ?

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  • Raddatz, Claudio

Abstract

This paper provides evidence of the presence and relevance of a credit-chain amplification mechanism by looking at its implications for the correlation of industries. In particular, it tests the hypothesis that an increase in the use of trade-credit along the input-output chain linking two industries results in an increase in their correlation. The analysis uses detailed data on the correlations and input-output relations of 378 manufacturing industry-pairs across 44 countries with different degrees of use of trade credit. The results provide strong support for this hypothesis and indicate that the mechanism is quantitatively relevant.

Suggested Citation

  • Raddatz, Claudio, 2008. "Credit chains and sectoral comovemen t: does the use of trade credit amplify sectoral shocks ?," Policy Research Working Paper Series 4525, The World Bank.
    • Handle: RePEc:wbk:wbrwps:4525
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    Keywords

    Economic Theory&Research; Access to Finance; Bankruptcy and Resolution of Financial Distress; Investment and Investment Climate;
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