Abstract

http://ssrn.com/abstract=1848265
 
 

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Poultry in Motion: A Study of International Trade Finance Practices


Pol Antras


Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

C. Fritz Foley


Harvard Business School; National Bureau of Economic Research (NBER)

June 14, 2013


Abstract:     
This paper analyzes the financing 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 financing terms. These patterns help discipline a model in which the choice of trade finance 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 specified 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 findings 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 effective than the exporter in pursuing financial claims against importers.

Number of Pages in PDF File: 48

Keywords: trade finance, contract enforcement

JEL Classification: F1, G0

working papers series





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Date posted: May 25, 2011 ; Last revised: June 20, 2013

Suggested Citation

Antras, Pol and Foley, C. Fritz, Poultry in Motion: A Study of International Trade Finance Practices (June 14, 2013). Available at SSRN: http://ssrn.com/abstract=1848265 or http://dx.doi.org/10.2139/ssrn.1848265

Contact Information

Pol Antras
Harvard University - Department of Economics ( email )
Littauer Center
Room 230
Cambridge, MA 02138
United States
617-495-1236 (Phone)
617-495-8570 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
C. Fritz Foley (Contact Author)
Harvard Business School ( email )
Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States
617-495-6375 (Phone)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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