Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/79665
Authors: 
Dahl, Gordon B.
Løken, Katrine V.
Mogstad, Magne
Year of Publication: 
2013
Series/Report no.: 
CESifo Working Paper 4349
Abstract: 
When trading, firms choose between different payment contracts. As shown theoretically in Schmidt-Eisenlohr (forthcoming), this allows firms in international trade to optimally trade-off differences in financing costs and enforcement across countries. This paper provides evidence from a large number of countries that shows that country characteristics are indeed central determinants of the payment contract choice. As predicted, the use of open account decreases in financing costs and contract enforcement in the source country. We extend the theory and test two additional predictions. First, we show that the more complex the industry of a firm, the more important is the quality of contract enforcement and the less important are the financing costs for the contract choice. Second, we compare direct and indirect exporters and find evidence that suggests that intermediaries play a relevant role in contract enforcement across borders.
Subjects: 
trade finance
payment contracts
industry complexity
developing countries
trade intermediation
JEL: 
F12
F30
G21
G32
Document Type: 
Working Paper

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