Towards a theory of trade finance

Tim Schmidt-Eisenlohr

Research output: Contribution to journalArticlepeer-review


Shipping goods internationally is risky and takes time. To allocate risk and to finance the time gap between production and sale, a range of payment contracts is utilized. I study the optimal choice between these payment contracts and their implications for trade. The equilibrium contract is determined by financial market characteristics and contracting environments in both the source and the destination country. Trade increases in enforcement probabilities and decreases in financing costs proportional to the time needed for trade. Empirical results from gravity regressions are in line with the model, highly significant and economically relevant. They suggest that importer finance is as important for trade as exporter finance.

Original languageEnglish (US)
Pages (from-to)96-112
Number of pages17
JournalJournal of International Economics
Issue number1
StatePublished - Sep 2013
Externally publishedYes


  • Distance interaction
  • Payment contracts
  • Trade finance
  • Trade patterns

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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