Exporter’s Productivity and the Cash-In-Advance Payment: Transaction-Level Analysis of Turkish Textile and Clothing Exports

Abstract

This study examines how the productivity of an exporter influences the choice of cash-in-advance (CIA) payment. Using the transaction-level data of Turkish textile and clothing exports from 2009 to 2017 merged with the firm-level information, we find that the relationship between the exporter’s productivity and the likelihood that the exporter uses the CIA is nonlinear. An exporter with higher productivity is more likely to choose the CIA; however, this tendency is mitigated among the highest-productivity exporters. We build a parsimonious theoretical model considering firm productivity heterogeneity and provide a rationale for those empirical findings. Furthermore, the CIA is more commonly used for exports in small transactions and to countries with a weak rule of law. We also show that the CIA is more likely to be used for destination countries with low gross domestic products per capita. In addition, the CIA is used more commonly when the value of the Lira is low against the destination country’s currency.