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Poultry in Motion: A Study of International Trade Finance Practices

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  • Antràs, Pol
  • Foley, C. Fritz

Abstract

This paper analyzes the financing terms that support international trade and sheds light on how and why these arrangements affect trade. Using detailed transaction level data from a U.S. based exporter of frozen and refrigerated food products, primarily poultry, it begins by describing broad patterns about the use of alternative financing terms. These patterns help discipline a model in which the trade finance mode is shaped by the risk that an importer defaults on an exporter and by the possibility that an exporter does not deliver goods as specified in the contract. The empirical results indicate that transactions are more likely to occur on cash in advance or letter of credit terms when the importer is located in a country with weak contractual enforcement and in a country that is further from the exporter. Letters of credit, however, are rarely used by the exporter. As an importer develops a relationship with the exporter, transactions are less likely to occur on terms that require prepayment. During the recent crisis, the exporter was more likely to demand cash in advance terms when transacting with new customers, and customers that traded on cash in advance terms prior to the crisis disproportionately reduced their purchases. These results can be rationalized by the model whenever (i) misbehavior on the part of the exporter is of little concern to importers, and (ii) local banks in importing countries are typically more effective than the exporter in pursuing financial claims against importers.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8422.

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Date of creation: Jun 2011
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Handle: RePEc:cpr:ceprdp:8422

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Keywords: contract enforcement; poultry; Trade finance; working capital;

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Cited by:
  1. Aeberhardt, Romain & Buono, Ines & Fadinger, Harald, 2014. "Learning, incomplete contracts and export dynamics: Theory and evidence from French firms," European Economic Review, Elsevier, vol. 68(C), pages 219-249.
  2. Mihir A. Desai & C. Fritz Foley & James R. Hines Jr., 2012. "Trade Credit and Taxes," NBER Working Papers 18107, National Bureau of Economic Research, Inc.
  3. Leora Klapper & Luc Laeven & Raghuram Rajan, 2012. "Trade Credit Contracts," Review of Financial Studies, Society for Financial Studies, vol. 25(3), pages 838-867.
  4. JaeBin Ahn, 2011. "A Theory of Domestic and International Trade Finance," IMF Working Papers 11/262, International Monetary Fund.
  5. Silvia Del Prete & Stefano Federico, 2014. "Trade and finance: is there more than just 'trade finance'? Evidence from matched bank-firm data," Temi di discussione (Economic working papers) 948, Bank of Italy, Economic Research and International Relations Area.
  6. Kalina Manova & Zhihong Yu, 2012. "Firms and Credit Constraints along the Global Value Chain: Processing Trade in China," NBER Working Papers 18561, National Bureau of Economic Research, Inc.
  7. Zheng, J., 2012. "Essays on pensions, health expectancy and credit insurance," Open Access publications from Tilburg University urn:nbn:nl:ui:12-5661243, Tilburg University.
  8. Tibor Besedeš & Byung–Cheol Kim & Volodymyr Lugovskyy, 2011. "Export Growth and Credit Constraints," CeFiG Working Papers 16, Center for Firms in the Global Economy, revised 16 Oct 2011.
  9. Artopoulos, Alejandro & Friel, Daniel & Hallak, Juan Carlos, 2013. "Export emergence of differentiated goods from developing countries: Export pioneers and business practices in Argentina," Journal of Development Economics, Elsevier, vol. 105(C), pages 19-35.
  10. Mirabelle Muûls, 2012. "Exporters, importers and credit constraints," LSE Research Online Documents on Economics 51516, London School of Economics and Political Science, LSE Library.

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