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Peer Effects in Program Participation

Author

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  • Gordon B. Dahl
  • Katrine Vellesen Loken
  • Magne Mogstad

Abstract

When trading, firms choose between different payment contracts. As shown theoretically in Schmidt-Eisenlohr (forthcoming), this allows firms in international trade to optimally trade-off differences in financing costs and enforcement across countries. This paper provides evidence from a large number of countries that shows that country characteristics are indeed central determinants of the payment contract choice. As predicted, the use of open account decreases in financing costs and contract enforcement in the source country. We extend the theory and test two additional predictions. First, we show that the more complex the industry of a firm, the more important is the quality of contract enforcement and the less important are the financing costs for the contract choice. Second, we compare direct and indirect exporters and find evidence that suggests that intermediaries play a relevant role in contract enforcement across borders.

Suggested Citation

  • Gordon B. Dahl & Katrine Vellesen Loken & Magne Mogstad, 2013. "Peer Effects in Program Participation," CESifo Working Paper Series 4349, CESifo.
  • Handle: RePEc:ces:ceswps:_4349
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    More about this item

    Keywords

    trade finance; payment contracts; industry complexity; developing countries; trade intermediation;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F30 - International Economics - - International Finance - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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