Trade credit promotes industrial growth during the COVID-19 pandemic: Evidence from the textile sector of Pakistan

Faiza Shah, Yumin Liu, Yasir Shah, Fadia Shah

Abstract


Relevance. The rapid spread of COVID-19 around the world is disastrous to low-income countries. The pandemic was a serious threat to developing countries. In the case of Pakistan's textile industry, small and medium-sized enterprises (SMEs) have been hit hard. Importantly, the textile sector is the largest industrial sector in Pakistan.

Purpose of the study. The purpose of the article is to identify the challenges that SMEs are facing due to the pandemic and to consider trade credit as a possible tool to resolve them.

Data and Methods. The data were collected through the questionnaire survey among the representatives of SMEs in the textile industry in Pakistan. In total, representatives of 150 textile industries were surveyed, but due to incomplete data only 115 were used for the analysis. The survey was conducted from March 2020 to March 2021. Then, the structural equation model (SEM) was applied to ensure the accuracy of the results.  

Results. The COVID-19 pandemic has impacted the textile industry in Pakistan and the buying process as well as the satisfaction level.  The study highlights the industrial safety issues during the pandemic which exacerbated the economic difficulties. The study also explains the mechanism how perceived control over buying, perceived satisfaction, and perceived trust in science relate to trade credit and COVID-19 pandemic.

Conclusions. The Pakistani government has taken many proactive measures, but there is still no consistent policy to attract more agents to the small textile business. Thus, a trade loan is the best solution for SMEs as it does not require immediate cash payments. The lack of government support has exacerbated the general pandemic-related economic crisis. In this light, trade loans may be considered as one of the most effective tools to keep SMEs afloat.


Keywords


leverage, COVID-19, textile Industry of Pakistan, trade credit supply, trade credit demand, SMEs

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DOI: https://doi.org/10.15826/recon.2022.8.1.006

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