Micro, Macro, and Strategic Forces in International Trade Invoicing
46 Pages Posted: 17 Nov 2009
Date Written: November 2009
The use of different currencies in the invoicing of international trade transactions plays a major role in the international transmission of economic fluctuations. Existing studies argue that an exporters invoicing choice reflects structural aspects of her industry, such as market share and the price sensitivity of demand, the hedging of marginal costs, due for instance to the use of imported inputs, and macroeconomic volatility. We use a new highly disaggregated dataset to assess the roles of the various invoicing determinants. We find support for the factors identified in the literature, and document a new feature, in the form of a link between shipments size and invoicing. Specifically, larger transactions are more likely to be invoiced in the importers currency. We offer a potential theoretical explanation for the empirical link between transaction size and invoicing by allowing invoicing to be set through a bargaining between exporters and importers, a feature that is absent from existing models despite its empirical relevance.
Keywords: international trade, Invoicing currency, pass-through, vehicle currency
JEL Classification: F3, F4
Suggested Citation: Suggested Citation