Towards a Theory of Trade Finance

By Tim Schmidt-Eisenlohr. Social Science Research Network, 2011

211 citations recorded by the source corpus.

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.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/a303272eadc01feae6e9afb50f4d7da86924282d

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Citations in the corpus

Poultry in Motion: A Study of International Trade Finance Practices (2015, unknown): “The static version of the model developed below is similar to the one in Schmidt-Eisenlohr (2013).”
Firms in international trade (2016, methodology): “Another interpretation of the iceberg cost is in the compounded costs of financing that occur over time as a good is shipped from one location to the next, or the compounded risk from shipping (Schmidt-Eisenlohr (2013), see section four).”
Firms and the Global Crisis: French Exports in the Turmoil (2012, unknown): “24 Exporters and importers can appeal to diﬀerent forms of trade ﬁnance - open account, cash in advance, or letter of credit -depending on the characteristics of the source and destination countries which will inﬂuence the risks and ﬁ-nancing costs (Schmidt-Eisenlohr, 2010; Ahn, 2010).”