Payment choice in international trade: theory and evidence from cross-country firm-level data

Hoefele, Andreas; Schmidt-Eisenlohr, Tim; Yu, Zhihong

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.

Citation

Hoefele, A., Schmidt-Eisenlohr, T., & Yu, Z. (in press). Payment choice in international trade: theory and evidence from cross-country firm-level data. Canadian Journal of Economics / Revue Canadienne d'Économique, 49(1), 296-319. https://doi.org/10.1111/caje.12198

• Journal Article Type: Article
• Acceptance Date: May 6, 2015
• Online Publication Date: Sep 12, 2016
• Deposit Date: Jun 30, 2016
• Publicly Available Date: Sep 13, 2018
• Journal: Canadian Journal of Economics
• Print ISSN: 0008-4085
• Electronic ISSN: 1540-5982
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 49
• Issue: 1
• Pages: 296-319
• DOI: https://doi.org/10.1111/caje.12198
• Keywords: trade finance, payment contracts, industry complexity, developing countries, trade intermediation
• Public URL: https://nottingham-repository.worktribe.com/output/752501
• Related Public URLs: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1540-5982/
• Additional Information: This is the peer reviewed version of the following article: Hoefele, A., Schmidt‐Eisenlohr, T. and Yu, Z. (2016), Payment choice in international trade: Theory and evidence from cross‐country firm‐level data. Canadian Journal of Economics/Revue canadienne d'économique, 49: 296-319, which has been published in final form at https://onlinelibrary.wiley.com/doi/abs/10.1111/caje.12198. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.
• Contract Date: Jun 30, 2016