Working Paper: NBER ID: w15470
Authors: Linda S. Goldberg; Cédric Tille
Abstract: The use of different currencies in the invoicing of international trade transactions plays a major role in the international transmission of economic fluctuations. Existing studies argue that an exporter's invoicing choice reflects structural aspects of her industry, such as market share and the price-sensitivity of demand, the hedging of marginal costs, due for instance to the use of imported inputs, and macroeconomic volatility. We use a new highly disaggregated dataset to assess the roles of the various invoicing determinants. We find support for the factors identified in the literature, and document a new feature, in the form of a link between shipments size and invoicing. Specifically, larger transactions are more likely to be invoiced in the importer's currency. We offer a potential theoretical explanation for the empirical link between transaction size and invoicing by allowing invoicing to be set through a bargaining between exporters and importers, a feature that is absent from existing models despite its empirical relevance.
Keywords: invoicing; international trade; currency choice; bargaining; macroeconomic volatility
JEL Codes: F3; F4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| price sensitivity (D41) | invoicing currency choice (F31) |
| shipment size (L87) | invoicing currency (importer's currency) (F31) |
| market share + shipment size (L25) | invoicing currency (importer's currency) (F31) |
| exchange rate volatility (F31) | invoicing currency (own currency) (F31) |
| commodity input use (Q02) | invoicing currency (US dollars) (F33) |
| bargaining power + shipment size (L11) | invoicing currency (destination currency) (F33) |