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

Andreas Hoefele, Tim Schmidt-Eisenlohr and Zihong Yu
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Zihong Yu: Nottingham University School of Economics, UK

Discussion Paper Series from Department of Economics, Loughborough University

Abstract: 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.

Keywords: trade finance; payment contracts; industry complexity; developing countries; trade intermediation (search for similar items in EconPapers)
JEL-codes: F12 F3 G21 G32 (search for similar items in EconPapers)
Date: 2013-10, Revised 2013-10
New Economics Papers: this item is included in nep-ifn
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Citations: View citations in EconPapers (17)

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Related works:
Journal Article: Payment choice in international trade: Theory and evidence from cross-country firm-level data (2016)
Journal Article: Payment choice in international trade: Theory and evidence from cross‐country firm‐level data (2016)
Working Paper: Payment Choice in International Trade: Theory and Evidence from Cross-country Firm Level Data (2013)
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