Product heterogeneity in international terms of payment

Abstract

AbstractThis study examines the effects of product characteristics on the choice of payment methods for international trade. I develop a theoretical model that leads to two new testable hypotheses. First, as the transaction value increases, exporters tend to choose safer payment methods, such as letters of credit, rather than post‐shipment payments. Second, if the products in the transaction are easily liquidated, exporters tend to choose safer payment terms. Product‐destination‐level export data from Korean exports declaration forms support both hypotheses. Furthermore, the results using these comprehensive data on tradable goods and countries generalize the findings of previous studies on country characteristics.