Export or Trade Finance - Explained
What is Export or Trade Finance?
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Table of ContentsWhat is Export Finance?What is Trade Finance?Academic Research on Export or Trade Finance
What is Export Finance?
Export finance, also known as trade finance, refers to financing or funding activities related to export, import, and international trade. Export finance may include letters of credit, export insurance, shipment insurance, and export credit. There are many financial institutions that are involved in export financing, including banks, insurance companies, export credit agencies, and other related companies.
What is Trade Finance?
As trades are not limited to national boundaries and now businesses are increasingly engaged in international trade, there is a need for insurance against such risk. For instance, a business may face liquidity risk, shipment risk, political risk, currency risk, and credit risk.
Trade or export finance overcomes payment or credit risk and supply related risks by acting as an intermediary with the third party. The basic function of export finance is to extend credit to the importer and guarantee payment to the exporter. Many firms provide export financing services including banks, financial institutions, insurance companies, and suppliers. According to the report of the World Trade Organization (WTO) 80 to 90 percent of international trade depends on export financing.
Academic Research on Export or Trade Finance
- Towards an EC policy on export financing subsidies: Lessons from the 1980s and prospects for future reform, Abraham, F., Couwenberg, I., & Dewit, G. (1992).World Economy,15(3), 389-406. Proponents of free trade argue that export promotion distorts competition and undermines the multilateral trade system. In most countries export insurance is provided by the government and, consequently, is driven more by a broad range of policy objectives than purely insurance principles. This paper, however, shows that export promotion does not necessarily imply trade distortions and that most export destinations do not benefit from insurance premium subsidies. A significant policy implication of these findings is that the WTO and the EU are correct not to banish completely official export insurance.
- International competition: Conflict and cooperation in governmentexport financing, Evans, P. C., & Oye, K. A. (2001). The Ex-Im bank in the 21st century: A new approach, 113-158. This paper focuses on the partnership and rivalry of export credit agencies (ECAs). The main focus is on the impact and processes of export lending, and their effects on export growth. It further shows that current lender policy encourages a focus on short-term returns rather than an exporter's long-term strategic position in the market.
- Cross-national comparison ofexportpromotion services: the views of Canadian and Austrian companies, Seringhaus, F. R., & Botschen, G. (1991).Journal of International Business Studies,22(1), 115-133. Export promotion systems in Canada and Austria are contrasted and their services evaluated from a company perspective. The Canadian system is government-based, while the Austrian one operates in the private sector. A survey of stratified samples of exporters in Canada (271) and Austria (312) shows significant differences in perceived usefulness of services given similar exporter needs. Emphasis is placed on the need of support by the companies in these countries. Conclusions are offered with respect to improving the respective export promotion systems.
- Export financingand the role of theExport-Import Bank of the United States, Rendell, R. S. (1976). J. Int'l L. & Econ.,11, 91. This article is concerned with the use of credit in United States export transactions. It analyses the two types of foreign trade credits and explains how they work.
- Financingvs. forgiving a debt overhang, Krugman, P. (1988). Journal of development Economics,29(3), 253-268. This paper examines the tradeoffs facing creditors of a country whose debt is large enough that the country cannot attract voluntary new lending. The paper shows that the choice between financing and forgiveness represents a tradeoff. The paper also shows that the tradeoff itself can be improved if both financing and forgiveness are made contingent on states of nature that the country cannot affect, such as oil prices, world interest rates, etc.
- Release the constraints: Solving the problems ofexport financingin troublesome times, Griffith, D. A., & Czinkota, M. R. (2012). Business Horizons,55(3), 251-260. This paper focuses on the impact and processes of export lending, and their effects on export growth. Findings from an external study suggest that changes in the financial industry's structure over the last two decades, coupled with the economic recession, have motivated policy that hampers the ability of exporting to contribute to economic recovery. It further shows that that current lender policy encourages a focus on short-term returns rather than an exporter's long-term strategic position in the market.
- Export Financing, Streng, W. P. (1973). San Diego L. Rev.,11, 104. This article focuses on the financial aspect of export transactions, as part of a legal symposium.
- Financingnon-traditional exports in Ghana, Buatsi, S. N. (2002). Journal of Business & Industrial Marketing,17(6), 501-522. In order to provide a better understanding of export financing in Ghana this exploratory study was undertaken on a sample of nontraditional exporting firms and selected banks. The focus is on export financing in Ghana. It further analyses the possible impact of the Export Development and Investment Act on export growth in the country.
- A comparison of Project Finance and the Forfeiting Model asfinancingforms for PPP projects in Germany, Daube, D., Vollrath, S., & Alfen, H. W. (2008). International journal of project management,26(4), 376-387. This paper compares Project Finance with the Forfeiting Model as the two basic forms that are used to finance Public Private Partnership projects in Germany. It describes the basic characteristics of both models in order to estimate their respective advantages and disadvantages from the public principals perspective. The economic feasibility study is presented as an instrument to choose the most efficient PPP financing form. It is used to compare idealized models of PPP financing variants.
- Sources ofExport Financing, Graham, T. (1984). Ga. J. Int'l & Comp. L.,14, 455. In this paper, the author discusses the subject of export financing on three broad levels. This paper focuses on the sources and types of export financing, the recent legislative actions related to export financing, and the current international issues broadly affecting United States export financing since the 1980s.
- Exportperformance: do managerial perceptions make a difference?, Axinn, C. N. (1988). International marketing review,5(2), 61-71. This paper explores managers' perceptions of exporting and their influence on firm export performance of machine tool manufacturers in the US and Canada. Emphasis is placed on managers' perceptions of the advantages of exporting over domestic sales, especially perceptions of exportrelated growth opportunities. Perceptions of the complexities associated with exporting and managers' work experience overseas are also shown to be related to the percentage of sales a firm obtains by exporting. This paper outlines possible explanations of these findings and goes on to discuss the different implications.