Grin and Bear It: Producer-financed Exports from an Emerging Market

Banu Demir, Beata Javorcik.

Discussion paper series, CEPR.No. 10142.

This study uses a unique dataset to provide the first comprehensive test of the
theory of export financing. We extend the existing literature by drawing
attention to the theoretical and empirical relationship between the extent of
competition in the export market and the choice of financing terms. Our
dataset covers the universe of Turkey's exports disaggregated by product,
destination, and financing terms for the period 2004-2011. Our identification
strategy takes advantage of an exogenous shock, namely, the end of the
Multi-Fibre Arrangement (MFA), a system of bilateral quotas governing the
global trade in textiles and clothing until January 1, 2005. The analysis, based
on a difference-in-differences approach, suggests that exporter-financed
exports to the European Union disproportionately increased, relative to
importer or bank-financed exports, in the post-MFA period in products where
Turkish competitors initially faced binding quotas. As Turkey was not bound by
EU quotas before the end of the MFA, these results are consistent with an
increase in competition pushing Turkish exporters to offer trade financing. Our
results also support the other theoretical predictions. They indicate that the
prevalence of exporter-financed exports (relative to exports on other financing
terms) increases with the institutional quality in the importing country, with this
effect being stronger for differentiated products. Exporter-financed exports are
also more likely to be destined for countries with a less efficient banking
sector.

 

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Published Aug. 4, 2015 3:50 PM - Last modified Apr. 24, 2019 1:27 AM