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Payment choice in international trade: Theory and evidence from cross‐country firm‐level data

Author

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  • Andreas Hoefele
  • Tim Schmidt‐Eisenlohr
  • Zhihong Yu

Abstract

When trading across borders, firms choose between different payment contracts. Theoretically, this should allow firms to trade‐off differences in financing costs and enforcement across countries. This paper provides evidence for this hypothesis employing firm‐level data from a large number of developing countries. As predicted, international transactions are more likely paid after delivery when financing costs in the source country are high and when contract enforcement is low. We extend the theory and also show empirically that the more complex an industry is, the more important is contract enforcement and the less important are financing costs for the contract choice. Modes de paiement dans le commerce international : théorie et résultats à partir de données transversales au niveau des firmes et entre pays. Quand elles commercent avec des partenaires outre‐frontières, les firmes peuvent choisir différents modes de paiement. Théoriquement, cela devrait permettre aux firmes de prendre en compte les différences dans les coûts de financement et les contrôles d’application des contrats entre pays. Ce texte présente des résultats qui montrent que c’est le cas à l’aide de données au niveau de la firme pour un grand nombre de pays en développement. Comme prévu, les transactions internationales sont davantage susceptibles d’être payées après livraison quand les coûts de financement sont élevés dans le pays source et l’exécution des contrats assez molle. On développe la théorie, et on montre qu’empiriquement, plus l’industrie est complexe, plus l’exécution du contrat est importante et moins les coûts de financement sont importants dans le processus de choix de contrats.

Suggested Citation

  • Andreas Hoefele & Tim Schmidt‐Eisenlohr & Zhihong Yu, 2016. "Payment choice in international trade: Theory and evidence from cross‐country firm‐level data," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 49(1), pages 296-319, February.
  • Handle: RePEc:wly:canjec:v:49:y:2016:i:1:p:296-319
    DOI: 10.1111/caje.12198
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