Determinants of Trade Credit Demand and Supply in the Tanzanian Rice Market: A Structural Modelling Approach

42 Pages Posted: 10 Sep 2010

See all articles by Ernest Kihanga

Ernest Kihanga

affiliation not provided to SSRN

Robert Lensink

University of Groningen - Department of Economics, Econometrics and Finance; Wageningen UR - Development Economics Group

Clemens Lutz

University of Groningen - Faculty of Economics and Business

Niels Hermes

University of Groningen - Faculty of Economics and Business

Date Written: September 10, 2010

Abstract

This paper analyzes the determinants of trade credit demand and supply in the Tanzanian rice market, using data from individual trade transactions between rice wholesalers and rice retailers. We use a structural modelling approach to disentangle the supply and demand effects that may drive the use of trade credit in this market. We find evidence that trade credit demand is determined primarily by the extent to which retailers need external short-term funds to finance trade and business activities. With respect to trade credit supply, our analysis suggests that it is mainly determined by incentives wholesalers have to keep clients and/or attract new ones. Moreover, supply may be driven by the extent to which wholesalers have information about the default probability of their customers. Finally, both trade credit supply and demand are determined by transaction cost considerations.

Keywords: trade credit demand, trade credit supply, structural modelling approach, Tanzania

JEL Classification: L12, L14

Suggested Citation

Kihanga, Ernest and Lensink, Robert and Lutz, Clemens and Hermes, Niels, Determinants of Trade Credit Demand and Supply in the Tanzanian Rice Market: A Structural Modelling Approach (September 10, 2010). Available at SSRN: https://ssrn.com/abstract=1674842 or http://dx.doi.org/10.2139/ssrn.1674842

Ernest Kihanga

affiliation not provided to SSRN

Robert Lensink

University of Groningen - Department of Economics, Econometrics and Finance ( email )

P.O. Box 800
9700 AH Groningen
Netherlands

Wageningen UR - Development Economics Group ( email )

Hollandseweg 1
WAGENINGEN, 6706 KN
Netherlands

Clemens Lutz

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

Niels Hermes (Contact Author)

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

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