Credit constraints and trade performance: Does trust-based social capital matter?

It has been extensively argued that trust-based social capital expands access to credit. We embed this argument in the "credit-constrained literature," which documents inter-sector differences in financial vulnerability. We argue that financially constrained sectors are relatively better off in countries with a higher social trust level. Employing bilateral trade data comprising 50 countries' exports in 27 sectors during 1996-2008, we find that countries with a higher social trust level export more in financially vulnerable sectors because they export more products to each destination (extensive margin) and sell more of each product (intensive margin), which is in line with our hypothesis. With the exception of the intensive margin, these results are robust to a battery of sensitivity checks, including controlling for formal financing.

Keywords: Social Trust, Trade, Trade Margins, Credit Constraints

JEL Classification: F10, F14, D70