International Trade Finance and Learning Dynamics

We study how learning within trading relationships determines export and trade finance dynamics jointly. Using micro-level Chilean data, we document that new exporters are more likely to use cash-in-advance (CIA) payments and gradually switch to providing trade credit. These dynamics affect export growth and relationship length and are more salient for firms with less exporting experience and selling to riskier destinations. We set up an international trade model in which firms make exporting and trade financing decisions subject to demand and counterparty risks and estimate it using microdata. We then quantify the relative importance of demand and counterparty risks and investigate how trade finance choices and learning affect export dynamics. The equilibrium response of aggregate exports to shocks to aggregate interest rates can overshoot in the short run if long-term relationships are destroyed. These responses depend on the riskiness of export destinations.