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Title:Towards a theory of trade finance PDF Logo
Authors:Schmidt-Eisenlohr, Tim
Issue Date:2011
Series/Report no.:CESifo working paper: Trade Policy 3414
Abstract: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 considering one shot transactions, repeated transactions and 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.
Subjects:trade finance
payment contracts
trade patterns
distance interaction
JEL:F12
F30
G21
G32
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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