This paper theoretically and empirically analyzes the financing terms that support
international trade. The choice of trade finance terms balances the risk that an importer
defaults on an exporter and the possibility that an exporter does not deliver goods as
specified. Analysis of transaction-level data from a US exporter reveals that importers
located in countries with weak enforcement of contracts typically finance transactions, but
these firms are able to overcome the constraints of such environments if they can establish a …

This paper analyzes the financing terms that support international trade and sheds light on
how and why these arrangements affect trade. Using detailed transaction level data from a
US based exporter of frozen and refrigerated food products, primarily poultry, it begins by
describing broad patterns about the use of alternative financing terms. These patterns help
discipline a model in which the trade finance mode is shaped by the risk that an importer
defaults on an exporter and by the possibility that an exporter does not deliver goods as …