Cash-in-advance Payments and Transaction Size: Cash-constrained importers

Author Name YOSHIDA Yushi (Shiga University) / Kemal TÜRKCAN (Akdeniz University) / YOSHIMI Taiyo (Chuo University)
Creation Date/NO. May 2022 22-E-051
Research Project Exchange Rates and International Currency
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A high-productivity exporter can gain a stronger position over an importer in determining how and when payment is made. With the lower risk associated with exporters, cash-in-advance (CIA) payment is their preferred method of payment. However, a baseline probit regression for the Turkish export dataset at the transaction level did 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 for advance payment, especially for a large cash transaction. We find that increasing 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.