Why did the terms of payment in international trade change so much?

Sangyeon Hwang and Hyejoon Im

Applied Economics Letters, 2019, vol. 26, issue 7, 576-581

Abstract: This article examines factors contributing to the substantial change in the terms of payment, such as letter of credit (LC) and cash terms, in Korean export transactions during the period 1997–2015, using the Autoregressive Distributed Lag bounds test approach. We find that high competition in the world market, the expansion of exports of information technology products and intra-firm trade, and the improvement of information and communication technology (ICT) decrease the share of exports on LC terms in total exports in the long run. However, the increase in exports to developing countries raises the use of LC terms. On the other hand, the increase in intra-firm trade and ICT improvement raise the share of exports settled in cash, and higher trust between trading partners increases the use of cash terms.

Date: 2019
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DOI: 10.1080/13504851.2018.1488042

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