Trade Finance and Exports: Firm-level Evidence from China.

When we proxy trade finance by the sum of trade finance loans and export-adjusted notes receivable, elasticity estimates range between 0.18-0.31 depending on the sample of exporters. These estimates are comparable to single and multi-instrument trade finance instrument elasticities in the literature. Elasticity of export earnings is higher for smaller firms that may have relatively limited financing options from domestic capital markets. Given that listed firms represent the largest companies, we acknowledge that study findings may not be generalizable to the universe of highly heterogeneous Chinese traders. Nonetheless, our results suggest that well-functioning markets for trade finance are likely to enhance trade, while, by contrast, lack of affordable trade finance can be a barrier to trade, or a trade cost, in its own right.

Link: https://www.wto.org/english/res_e/reser_e/ersd202405_e.htm

Paper: https://www.wto.org/english/res_e/reser_e/ersd202405_e.pdf