TY - JOUR
T1 - Towards a theory of trade finance
AU - Schmidt-Eisenlohr, Tim
N1 - Funding Information:
I am grateful to Giancarlo Corsetti, Andrew Bernard, Russell Cooper and Omar Licandro for constant advice. I would also like to thank Agnès Bénassy-Quéré, Richard Baldwin, Jeffrey Bergstrand, Jonathan Eaton, Fritz Foley, Gene Grossman, Oliver Hart, Sebastian Krautheim, Marc Melitz, Giordano Mion, Friederike Niepmann, Emanuel Ornelas, Stephen Redding, Vincent Rebeyrol, Tony Venables and Adrian Wood, as well as seminar participants at the University of Nottingham, the London School of Economics, Dartmouth College, the LEIT Conference 2011, the 2011 Midwest Trade Meetings, the CESifo Area Conference on Global Economy, Verein für Socialpolitik Annual Meeting, the European Workshop in Macroeconomics, ESNIE 2010, RIEF 2010, the De Nederlandsche Bank, OxCarre and the Royal Economic Society PhD Presentation Meeting 2010. This is a revised version of EUI Working Paper 2009/43 (December 2009). All remaining errors are mine. I acknowledge financial support from CESifo and the ESRC (Grant No. RES-060-25-0033 ).
PY - 2013/9
Y1 - 2013/9
N2 - 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.
AB - 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.
KW - Distance interaction
KW - Payment contracts
KW - Trade finance
KW - Trade patterns
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U2 - 10.1016/j.jinteco.2013.04.005
DO - 10.1016/j.jinteco.2013.04.005
M3 - Article
AN - SCOPUS:84881542223
SN - 0022-1996
VL - 91
SP - 96
EP - 112
JO - Journal of International Economics
JF - Journal of International Economics
IS - 1
ER -