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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
  • Avşar, Veysel

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 cost 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 & Avşar, Veysel, 2015. "Investigating the Role of Contract Enforcement and Financial Costs on the Payment Choice: Industry-Level Evidence from Turkey," MPRA Paper 64680, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:64680
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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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    More about this item

    Keywords

    Method of Payments; Trade Finance; Contract Enforcement; Financial Costs; Post-Shipment; Pre-Payment; Turkey.;
    All these keywords.

    JEL classification:

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

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