Cash-in-advance payment and transaction size: cash-constrained importers

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Yoshida Y., TÜRKCAN K., Yoshimi T.

ETSG 2022 Groningen Twenty-third Annual Conference, Groningen, Netherlands, 08 September 2022

  • Publication Type: Conference Paper / Full Text
  • City: Groningen
  • Country: Netherlands
  • Akdeniz University Affiliated: Yes

Abstract

A high-productivity exporter can be in a stronger position when facing an importer in determining how and when payment is made. With a lower risk associated with exporters, cash-in-advance (CIA) payment is preferred by exporters. However, a baseline probit regression for the Turkish export dataset at the transaction level could not find a positive relationship between exporters' productivity and CIA. This puzzling finding is reconciled when we consider the financial conditions of importers, which may not allow their payment in advance, especially for a large-cash transaction. We find that the transaction size discourages the use of CIA payments. We also find that the productivity of exporters is associated non-linearly, i.e., in an inverted-U shape, with the use of CIA payments.