Abstract |
We build a simple trade model in which: (i) exporters are paid after delivery
of the goods, and (ii) complementarity exists between procyclical contract enforcement
at the importing-country level and contractual vulnerability at the industry
level. In the model, an adverse aggregate shock in the importing country generates
a disproportionate decline in imports in more contractually vulnerable industries.
Using disaggregated bilateral trade data for more than 100 countries, we find robust
support for the models predictions. Our empirical approach exploits the variation
in the occurrence of recessions and financial crises across countries from 1989 to
2006, and the variation in contractual dependence across manufacturing industries.
The estimated amplification effects of contractual dependence on sectoral imports
are statistically significant and economically important. Our analysis uses different
industry measures of contractual vulnerability, including measures of product
complexity and a novel indicator of uncollectible credit sales. |