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Investigating the Role of Contract Enforcement and Financial Costs on the Payment Choice: Industry-Level Evidence from Turkey

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  • Türkcan Kemal

    (Department of Economics, Akdeniz University, Antalya, Turkey)

  • Avsar Veysel

    (Department of Economics, Antalya International University, Antalya, Turkey)

Abstract

This paper examines the effect of legal and financial conditions on the payment contract choice by empirically testing the predictions of Schmidt-Eisenlohr’s (2013) model with actual bilateral industry level trade finance data (at 2-digit level) from Turkey. Our results show that an improvement in contract enforcement and an increase in the financing costs in the importing country (exporting country) increases (decreases) the share of post-shipment sales. For the share of pre-payment sales, the opposite effects are estimated. Finally, we find that share of post-shipment sales (pre-payment sales) increases (decreases) in the number of products traded between partners in the past.

Suggested Citation

  • Türkcan Kemal & Avsar Veysel, 2016. "Investigating the Role of Contract Enforcement and Financial Costs on the Payment Choice: Industry-Level Evidence from Turkey," Global Economy Journal, De Gruyter, vol. 16(1), pages 135-160, March.
    • Handle: RePEc:bpj:glecon:v:16:y:2016:i:1:p:135-160:n:3
    DOI: 10.1515/gej-2015-0020
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    Cited by:

    1. Niepmann, Friederike & Schmidt-Eisenlohr, Tim, 2017. "International trade, risk and the role of banks," Journal of International Economics, Elsevier, vol. 107(C), pages 111-126.
    2. Türkcan, Kemal, 2016. "On the role of vertical differentiation in enhancing survival of export flows: Evidence from a developing country," MPRA Paper 71023, University Library of Munich, Germany.

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    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F30 - International Economics - - International Finance - - - General

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