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arXiv · 2303.04223

Financing Costs, Per-Shipment Costs and Shipping Frequency: Firm-Level Evidence from Bangladesh

Md Deluair Hossen
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Abstract

In international trade, firms face lengthy ordering-producing-delivery times and make shipping frequency decisions based on the per-shipment costs and financing costs. In this paper, I develop a model of importer-exporter procurement where the importer procures international inputs from exporting firms in developing countries. The exporters are credit constrained for working capital, incur the per-shipment fixed costs, and get paid after goods are delivered to the importer. The model shows that the shipping frequency increases for high financing costs in origin and destination. Furthermore, longer delivery times increase shipping frequency as well as procurement costs. The model also shows that the higher per-shipment fixed costs reduce the shipping frequency, in line with previous literature. Reduced transaction costs lower the exporter's demand for financial services through shipping frequency adjustment, mitigating the financial frictions of the firm. Then, I empirically investigate whether the conclusions regarding the effect of per-shipment fixed costs on shipping frequency from the theoretical model and in the existing literature extend to developing countries. My estimation method addresses several biases. First, I deal with aggregation bias with the firm, product, and country-level analysis. Second, I consider the Poisson Pseudo Maximum Likelihood (PPML) estimation method to deal with heteroscedasticity bias from the OLS estimation of log-linear models. Third, I fix the distance non-linearity of Bangladeshi exports. Finally, I consider the effect of financing cost on shipping frequency to address omitted variable bias. Using transaction-level export data from Bangladesh, I find that 10% higher per-shipment costs reduce the shipping frequency by 3.45%. The findings are robust to different specifications and subsamples.

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Md Deluair Hossen. 2023-03-07. Financing Costs, Per-Shipment Costs and Shipping Frequency: Firm-Level Evidence from Bangladesh. https://arxiv.org/abs/2303.04223

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