Trust-Based Trade

Araújo, Luis; Ornelas, Emanuel

doi:10.2139/ssrn.642803

Cited by 29 publications

(25 citation statements)

References 22 publications

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“…Since this does not alter the sign of our testable implications, for brevity we keep the model simpler here. 11 We thank an anonymous referee for this suggestion.…”

Section: The Benchmark Environmentmentioning

confidence: 99%

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Institutions and export dynamics

Araújo

Mion

Ornelas³

2016

Journal of International Economics

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125

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We study how contract enforcement and export experience shape firm export dynamics in an environment with incomplete information. We show that exporters start with higher volumes and sell for longer periods in countries with better contracting institutions and when they have prior foreign experience. However, conditional on survival, firm export growth decreases with the quality of the country's institutions. Controlling for timevarying firm unobservables and other factors, we confirm these and other predictions using a panel of Belgian exporting firms from 1995 to 2008. The results highlight the manifold implications of export experience and contracting institutions for firm dynamics in foreign markets.JEL Classification: F10, F12, L14

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“…Since this does not alter the sign of our testable implications, for brevity we keep the model simpler here. 11 We thank an anonymous referee for this suggestion.…”

Section: The Benchmark Environmentmentioning

confidence: 99%

“…Accordingly, we assume that demand, and thus the revenue from sales, is increasing in the experience of the producer. 11 Hence, if a producer exports quantity q, he obtains a revenue R(q, e), where R q > 0, R qq < 0, R e > 0, R ee < 0 and R qe ≥ 0.…”

Section: The Benchmark Environmentmentioning

confidence: 99%

Institutions and export dynamics

Araújo

Mion

Ornelas³

2016

Journal of International Economics

Self Cite

125

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“…This additional growth component can be explained 11 Rauch and Watson (2003) argue that exporters to a market "start small" and are only able to expand once their foreign partners are convinced of their reliability. Araujo and Ornelas (2007) point out that evolving trust levels within partnerships substitute for weak cross-border contract enforcement, implying that trade volumes increase over time, conditional on survival. 12 The insignificant coefficient in the regression without firm fixed effects simply reveals the degree of firm heterogeneity in our sample.…”

Section: Intensive Margin Export Growthmentioning

confidence: 99%

“…This could be studied, for example, in a framework that extends partnership models like Rauch and Watson's (2003) or Araujo and Ornelas' (2007) to a multi-market context. The key element would be that exporters' activities across markets need to become public information to all distributors globally.…”

Section: Alternative Mechanismsmentioning

confidence: 99%

Sequential exporting

Albornoz¹,

Calvo‐Pardo²,

Corcos³

et al. 2012

Journal of International Economics

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368

340

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Many new exporters give up exporting very shortly, despite substantial entry costs; others shoot up foreign sales and expand to new destinations. We develop a model based on experimentation to rationalize these and other dynamic patterns of exporting firms. We posit that individual export profitability, while initially uncertain, is positively correlated over time and across destinations. This leads to "sequential exporting," where the possibility of profitable expansion at the intensive and extensive margins makes initial entry costs worthwhile despite high failure rates. Firm-level evidence from Argentina's customs, which would be difficult to reconcile with existing models, strongly supports this mechanism. Sequential exporting also has important and novel policy implications: a reduction in trade barriers has delayed effects, while also promoting entry in third markets. This trade externality poses challenges for the quantification of the effects of trade liberalization programs and implies that the consequences of international trade agreements are significantly richer than traditional models suggest. JEL Codes: F10; D21; F13 Keywords: Export dynamics, experimentation, uncertainty, learning, trade liberalization * We thank Costas Arkolakis, David Atkin, Sami Berlinski, Jordi Blanes-i-Vidal, John Bluedorn, Holger Breinlich, Svetlana Demidova, Nic de Roos, Peter Egger, Robert Elliott, Daniel Ferreira, Rodrigo Fuentes, Martin Gervais, Juan Carlos Hallak, James Harrigan, Beata Javorcik, Marc-Andreas Muendler, Peter Neary, Brent Neiman, Dimitra Petropoulou, Horst Raff, Steve Redding, Frédéric Robert-Nicoud, Mark Roberts, Ina Simonovska, Thierry Verdier, Zhihong Yu, and seminar participants at various institutions and conferences for valuable comments and suggestions. We also thank the support of the Chair Jacquemin of the Université Catholique de Louvain in choosing this paper for its annual award at the 2009 European Trade Study Group Meeting. We gratefully acknowledge financial support from the British Academy and the ESRC.

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“…Whenever a contract is enforced successfully, a share δ of the revenue is lost due to litigation and other costs associated with the non-cooperative model more tractable, but requires the additional limited value constraint. The first paper I am aware of to introduce two types of firms into a setting with an importer-exporter pair is Araujo and Ornelas (2007). The most similar approach regarding this point is taken by Glady and Potin (2011) who also introduce two types of firms and a pooling case.…”

mentioning

confidence: 99%

Towards a Theory of Trade Finance

Schmidt‐Eisenlohr

2012

SSRN Journal

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Shipping goods internationally is risky and takes time. To allocate risk and to finance the time gap between production and sale, a range of payment contracts is utilized. I study the optimal choice between these payment contracts and their implications for trade. The equilibrium contract is determined by financial market characteristics and contracting environments in both the source and the destination country.Trade increases in enforcement probabilities and decreases in financing costs proportional to the time needed for trade. Empirical results from gravity regressions are in line with the model, highly significant and economically relevant. They suggest that importer finance is as important for trade as exporter finance.

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Trust-Based Trade

Cited by 29 publications

References 22 publications

Institutions and export dynamics

Institutions and export dynamics

Sequential exporting

Towards a Theory of Trade Finance

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