A Theory of Domestic and International Trade Finance

Ahn, JaeBin

doi:10.5089/9781463924607.001

Cited by 53 publications

(41 citation statements)

References 41 publications

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“…9 Ahn (2011) motivates the use of letters of credit and points out that larger trade volumes create incentives for banks to invest in acquiring information. The results on the role of contractual enforcement discussed below do not appear be a consequence of trade volumes, while the results on the role of relationships do indicate that learning about counterparty credit risk has an e¤ect on which …nancing terms are used.…”

Section: Introductionmentioning

confidence: 99%

Poultry in Motion: A Study of International Trade Finance Practices

Antràs

Foley

2015

Journal of Political Economy

215

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This paper analyzes the …nancing terms that support international trade and sheds light on how these terms shape the impact of economic shocks on trade. Analysis of transaction-level data from a U.S.-based exporter of frozen and refrigerated food products, primarily poultry, reveals broad patterns about the use of alternative …nancing terms. These patterns help discipline a model in which the choice of trade …nance terms is shaped by the risk that an importer defaults on an exporter and by the possibility that an exporter does not deliver goods as speci…ed in the contract. The empirical results indicate that cash in advance and open account terms are much more commonly used than letter of credit and documentary collection terms. Transactions are more likely to occur on cash in advance or letter of credit terms when the importer is located in a country with weak contractual enforcement. As an importer develops a relationship with the exporter, transactions are less likely to occur on terms that require prepayment. During the recent crisis, the exporter was more likely to demand cash in advance terms when transacting with new customers, and customers that traded on cash in advance and letter of credit terms prior to the crisis decreased their purchases by 17.3% more than other customers. The model illustrates that these …ndings can be rationalized if (i) misbehavior on the part of the exporter is of little concern to importers, and (ii) local banks in importing countries are more e¤ective than the exporter in pursuing …nancial claims against importers.Harvard University and NBER; Harvard Business School and NBER. The authors are very grateful to numerous employees at the anonymous …rm that provided the data and to Matthew Johnson and James Zeitler for excellent research assistance. We also thank

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Section: Introductionmentioning

confidence: 99%

Poultry in Motion: A Study of International Trade Finance Practices

Antràs

Foley

2015

Journal of Political Economy

215

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“…As Amiti and Weinstein (2009) have argued, the higher sensitivity of exports to financial forces provides a reason why exports should be more susceptible to financial shocks than domestic sales. Ahn (2010) formalized and expanded on this intuition by developing the first general equilibrium framework for understanding why trade is particularly sensitive to financial shocks.…”

Section: What Is Trade Finance and Why Does It Matter For Exports?mentioning

confidence: 99%

Trade Finance and the Great Trade Collapse

Ahn

Amiti

Weinstein

2011

American Economic Review

Self Cite

194

115

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Economic models that do not incorporate financial frictions only explain about 70 to 80 percent of the decline in world trade that occurred in the 2008-2009 crisis. We review some of the evidence that shows financial factors also contributed to the great trade collapse, and we uncover two new stylized facts in support of it. First, we show that the prices of manufactured exports rose relative to domestic prices during the crisis. Second, we show that U.S. seaborne exports and imports, which are likely to be more sensitive to trade finance problems, saw their prices rise relative to goods shipped by air or land.

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“…Their results further suggest that the use of post shipment method (OA) increases as the relationship between trading partners develops. In addition to the aforementioned studies, some studies have explicitly dealt with only one method of payment in great detail, namely L/C (see Glady and Potin, 2011;Ahn, 2011Ahn, , 2013Olsen, 2013;and Niepmann and Schmidt-Eisenlohr, 2013).…”

Section: A Review Of the Theoretical And Empirical Literature On Tradmentioning

confidence: 99%

Evolving Patterns of Payment Methods in Turkish Foreign Trade

Türkcan

2017

EconWorld

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Serving the global marketplace brings many risks to the firms that they may not have on the domestic side. Apart from financing, trade finance mechanisms assist exporters and importers to mitigate or reduce their risks associated with doing business internationally. Finally, the evidence show that both exporters and importers started to use cashin advance method, the safest method of payment, more intensively than other methods shortly after the global recession in 2008. Overall, the patterns presented in this paper highlight the fact that Turkish traders are not able to set payment terms that are highly favorable to themselves and bear all risks associated with international trade transactions.

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A Theory of Domestic and International Trade Finance

Cited by 53 publications

References 41 publications

Poultry in Motion: A Study of International Trade Finance Practices

Poultry in Motion: A Study of International Trade Finance Practices

Trade Finance and the Great Trade Collapse

Evolving Patterns of Payment Methods in Turkish Foreign Trade

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