Credit Chains and Sectoral Comovement : Does the Use of Trade Credit Amplify Sectoral Shocks?

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-credi...

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Bibliographic Details
Main Author: Raddatz, Claudio
Format: Policy Research Working Paper
Language:English
Published: World Bank, Washington, DC 2012
Subjects:
CD
GDP
Online Access:http://documents.worldbank.org/curated/en/2008/02/9025045/credit-chains-sectoral-comovemen-t-use-trade-credit-amplify-sectoral-shocks
http://hdl.handle.net/10986/6414
Description
Summary: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.