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Payment Choice in International Trade: Theory and Evidence from Cross-country Firm Level Data

Listed author(s):
  • Andreas Hoefele

    (School of Business and Economics, Loughborough University, UK)

  • Tim Schmidt-Eisenlohr

    (University of Illinois, Urbana-Champaign, USA)

  • Zihong Yu

    (Nottingham University School of Economics, UK)

When trading across borders, firms choose between di erent 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 from a large number of countries. As predicted, the use of Open Account decreases in financing costs and contract enforcement in the source country. We extend the theory and show that the more complex an industry is, the more important is contract enforcement and the less important are financing costs for the contract choice. We also find evidence that suggests that international enforcement problems can explain trade intermediation.

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File URL: http://www.lboro.ac.uk/departments/sbe/RePEc/lbo/lbowps/LBOWPS_2013_11_Hoefele.pdf
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Paper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2013_11.

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Date of creation: Oct 2013
Date of revision: Oct 2013
Handle: RePEc:lbo:lbowps:2013_11
Contact details of provider: Postal:
Loughborough, Leicestershire, LE11 3TU

Phone: +44 (0) 1509 222701
Fax: +44 (0) 1509 223910
Web page: http://www.lboro.ac.uk/departments/sbe/research/economics/index.html

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  1. JaeBin Ahn, 2011. "A Theory of Domestic and International Trade Finance," IMF Working Papers 11/262, International Monetary Fund.
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  4. Ellingsen, Tore & Vlachos, Jonas, 2009. "Trade finance in a liquidity crisis," Policy Research Working Paper Series 5136, The World Bank.
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  11. Beck, Thorsten, 2002. "Financial development and international trade: Is there a link?," Journal of International Economics, Elsevier, vol. 57(1), pages 107-131, June.
  12. Bricongne, Jean-Charles & Fontagné, Lionel & Gaulier, Guillaume & Taglioni, Daria & Vicard, Vincent, 2012. "Firms and the global crisis: French exports in the turmoil," Journal of International Economics, Elsevier, vol. 87(1), pages 134-146.
  13. Papke, Leslie E & Wooldridge, Jeffrey M, 1996. "Econometric Methods for Fractional Response Variables with an Application to 401(K) Plan Participation Rates," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 619-632, Nov.-Dec..
  14. Vincente Cuñat, 2000. "Trade Credit: Suppliers as Debt Collectors and Insurance Providers," FMG Discussion Papers dp365, Financial Markets Group.
  15. Choi, Woon Gyu & Kim, Yungsan, 2005. "Trade Credit and the Effect of Macro-Financial Shocks: Evidence from U.S. Panel Data," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(04), pages 897-925, December.
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