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Towards a Theory of Trade Finance

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  • Tim Schmidt-Eisenlohr

Abstract

Shipping goods internationally is risky and takes time.� To allocate risk and to finance the time gap between production and sale, a range of payment contracts is utilized.� I study the optimal choice between these payment contracts and their implications for trade.� The equilibrium contract is determined by financial market characteristics and contracting environments in both the source and the destination country.� Trade increases in enforcement probabilities and decreases in financing costs proportional to the time needed for trade.� Empirical results from gravity regressions are in line with the model, highly significant and economically relevant.� They suggest that importer finance is as important for trade as exporter finance.

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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 583.

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Date of creation: 01 Dec 2011
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Handle: RePEc:oxf:wpaper:583

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Keywords: Trade finance; Payment contracts; Trade patterns; Distance interaction;

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References

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Citations

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Cited by:
  1. Nicolas Berman & José de Sousa & Philippe Martin & Thierry Mayer, 2012. "Time to Ship during Financial Crises," NBER Chapters, in: NBER International Seminar on Macroeconomics 2012, pages 225-260 National Bureau of Economic Research, Inc.
  2. Tim Schmidt-Eisenlohr, 2009. "Towards a Theory of Trade Finance," Economics Working Papers ECO2009/43, European University Institute.
  3. Rudolfs Bems & Robert C. Johnson & Kei-Mu Yi, 2013. "The Great Trade Collapse," Annual Review of Economics, Annual Reviews, vol. 5(1), pages 375-400, 05.
  4. Koen van der Veer, 2010. "The Private Credit Insurance Effect on Trade," DNB Working Papers 264, Netherlands Central Bank, Research Department.
  5. Nicolas Berman & Philippe Martin, 2012. "The Vulnerability of Sub-Saharan Africa to Financial Crises: The Case of Trade," IMF Economic Review, Palgrave Macmillan, vol. 60(3), pages 329-364, September.
  6. Bricongne, Jean-Charles & Fontagné, Lionel & Gaulier, Guillaume & Taglioni, Daria & Vicard, Vincent, 2010. "Firms and the global crisis: French exports in the turmoil," Working Paper Series 1245, European Central Bank.
  7. Antràs, Pol & Foley, C. Fritz, 2011. "Poultry in Motion: A Study of International Trade Finance Practices," CEPR Discussion Papers 8422, C.E.P.R. Discussion Papers.
  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.

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