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Investigating the Role of Contract Enforcement and Financial Costs on the Payment Choice: Industry-Level Evidence from Turkey

Kemal Türkcan EMAIL logo and Veysel Avsar
From the journal Global Economy Journal

Abstract

This paper examines the effect of legal and financial conditions on the payment contract choice by empirically testing the predictions of Schmidt-Eisenlohr’s (2013) model with actual bilateral industry level trade finance data (at 2-digit level) from Turkey. Our results show that an improvement in contract enforcement and an increase in the financing costs in the importing country (exporting country) increases (decreases) the share of post-shipment sales. For the share of pre-payment sales, the opposite effects are estimated. Finally, we find that share of post-shipment sales (pre-payment sales) increases (decreases) in the number of products traded between partners in the past.

Acknowledgment

We thank Tim Schmidt-Eisenlohr for helpful comments and discussions.

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Appendix

Table 8:

Classification of manufacturing industries based on technology.

IndustriesISIC Rev. 3
High-technology industries
Aircraft and spacecraft353
Pharmaceuticals2423
Office, accounting and computing machinery30
Radio, TV and communications equipment32
Medical, precision and optical instruments33
Medium-high-technology industries
Electrical machinery and apparatus, n.e.c31
Motor vehicles, trailers and semi-trailers34
Chemicals excluding pharmaceuticals24 excl. 2423
Railroad equipment and transport equipment, n.e.c352+359
Machinery and equipment, n.e.c29
Medium-low-technology industries
Building and repairing of ships and boats351
Rubber and plastic products25
Coke, refined petroleum products and nuclear fuel23
Other non-metallic mineral products26
Basic metals and fabricated metal products27–28
Low-technology industries
Manufacturing, n.e.c., Recycling36–37
Wood, pulp, paper products, printing and publishing20–22
Food products, beverages and tobacco15–16
Textiles, textile products, leather and footwear17–19
Total manufacturing15–37
Table 9:

Summary statistics.

VariablesMeanStandard deviation
Enforcement in the importing country–0.0571.002
Net interest margin in the importing country4.8263.050
Enforcement in exporting country0.0760.060
Net interest margin in exporting country5.9182.388
Private credit in exporting country25.47910.112
Private credit in the importing country50.12948.681
GDP per capita of the importing country*8.1361.622
GDP per capita of the exporting country8.9180.093
Exchange rate1.4840.145
# of exported products exported in h at t–1*1.8401.795
Published Online: 2016-3-8
Published in Print: 2016-3-1

©2016 by De Gruyter

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