I am an Assistant Professor at the Economics Department at the University of Illinois at Urbana-Champaign,
an Associate Member of Nuffield College, University of Oxford, and an Affiliate of CESifo, Munich.
PhD Economics, European University Institute, Florence, 2010
Supervisor: Giancarlo Corsetti. Committee: Andrew Bernard, Russell Cooperand Jonathan Eaton 

Download my CV.      
My email: t.schmidteisenlohr (at) gmail.com.


Working Papers & Work in Progress


No Guarantees, No Trade: How Banks affect Export Patterns (with Friederike Niepmann) link

Coverage in the Wall Street Journal Blog

Abstract: This study provides evidence that shocks to the supply of trade finance have a causal effect on U.S. exports. The identification strategy exploits variation in the importance of banks as providers of letters of credit across countries. The larger a U.S. bank’s share of the trade finance market in a country is, the larger should be the effect on exports to that country if the bank reduces its supply of letters of credit. We find that supply shocks have quantitatively significant effects on export growth. A shock of one standard deviation to a country’s supply of trade finance decreases exports, on average, by 2 percentage points. The effect is much larger for exports to small and risky destinations and in times when aggregate uncertainty is high. Our results imply that global banks affect export patterns and suggest that trade finance played a role in the Great Trade Collapse.

International Trade, Risk and the Role of Banks (with Friederike Niepmann)
Federal Reserve Bank Staff Report 633
An earlier version was circulated under the title: Banks in International Trade Finance: Evidence from the U.S.

Banks play a critical role in facilitating international trade by guaranteeing international payments and thereby reducing the risk of trade transactions. This paper employs banking data from the U.S. to document new empirical patterns regarding the use of letters of credit and similar bank guarantees. The analysis reveals that trade finance is a large and highly concentrated business. It corresponds to roughly 20 percent of U.S. exports, with the top five banks extending more than 90 percent of the guarantees. We find that exporters use letters of credit the most when exporting to countries with intermediate levels of risk. Moreover, they rely more on this instrument in times when funding is cheap and aggregate uncertainty is high. However, firms do not respond uniformly to changes in global interest rates and risk. Those that ship to high and low risk countries adjust their use of letters of credit the most. A modification of the standard model of payment contract choice in international trade is needed to rationalize these empirical findings.

Payment Choice in International Trade: Theory and Evidence from Cross-country Firm Level Data.
(with Andreas Hoefele and Zhihong Yu) CESifo Working Paper No. 4350

Abstract: When trading across borders, firms choose between different payment contracts. In particular, they need to decide whether payment takes place before or after delivery. As shown theoretically in Schmidt-Eisenlohr (forthcoming), this allows firms in international trade to optimally trade-off differences in financing costs and enforcement across countries. This paper provides evidence from a large number of countries that shows that country characteristics are indeed central determinants of the payment contract choice. As predicted, the use of open account decreases in financing costs and contract enforcement in the source country. We extend the theory and test two additional predictions. First, we show that the more complex the industry of a firm, the more important is the quality of contract enforcement and the less important are the financing costs for the contract choice. Second, we compare direct and indirect exporters and find evidence that suggests that intermediaries play a relevant role in contract enforcement across borders.

Wages and International Tax Competition (with Sebastian Krautheim
(Shortlisted for CESifo Distinguished Research Affiliate Award, Munich 2012)
Latest version (June 2012) CESifo Working Paper No. 3867 download

Abstract: Rent-sharing between firm owners and workers is a robust empirical finding. If workers bargain with firms, information on the actual surplus is essential. When the firm can use profit shifting to create private information on the surplus, it can thereby reduce its wage bill. We study how rent sharing and this wage incentive for profit shifting affect the ability of governments to tax multinational companies in a standard model of international tax competition. We find that if firms only have a tax incentive for profit shifting, rent-sharing decreases the competitive pressure on the large country and leads to higher equilibrium tax rates. When we allow for the wage channel, this result can change. If the wage incentive is sufficiently strong, rent-sharing increases the competitive pressure on the large country, implying a lower equilibrium tax rate.


Trade Credit Insurance for Domestic and International Sales - Theory and Evidence


Towards a Theory of Trade Finance
(Best Paper Award, Xth RIEF Doctoral Meeting, Kiel 2010; Shortlisted for CESifo Distinguished Research Affiliate Award, Munich 2011)
Journal of International Economics, September 2013 link
Latest WP version (April 2013) download
Abstract: Shipping goods internationally is risky and takes time. To allocate risk and to finance the time gap between production and sale, a range of payment contracts is utilized. I study the optimal choice between these payment contracts and their implications for trade. The equilibrium contract is determined by financial market characteristics and contracting environments in both the source and the destination country. Trade increases in enforcement probabilities and decreases in financing costs proportional to the time needed for trade. Empirical results from gravity regressions are in line with the model, highly significant and economically relevant. They suggest that importer finance is as important for trade as exporter finance.

Bank Bailouts, International Linkages and Cooperation
(with Friederike Niepmann)
Forthcoming, American Economic Journal: Economic Policy
(Klaus Liebscher Award 2011, Austrian Central Bank, Vienna 2011)
Latest version (May 2012) download

Abstract: Financial institutions are increasingly linked internationally. As a result, financial crisis and government intervention have stronger effects beyond borders. We provide a model of international contagion allowing for bank bailouts. While a social planner trades off tax distortions, liquidation losses and intra- and inter-country income inequality, in the non-cooperative game between governments there are inefficiencies due to externalities, no burden sharing and free-riding. We show that, in absence of cooperation, stronger interbank linkages make government interests diverge, whereas cross-border asset holdings tend to align them. We analyze different forms of cooperation and their effects on global and national welfare.
Heterogeneous Firms, ‘Profit Shifting’ FDI and International Tax Competition (with Sebastian Krautheim)
Journal of Public EconomicsFebruary 2011 link
Latest version (September 2010): download
Abstract: Larger firms are more likely to use tax haven operations to exploit international tax differences. We study tax competition between a large country and a tax haven. In the large country, heterogeneous firms operate under monopolistic competition and can choose to shift profits abroad. We show that a higher degree of firm heterogeneity (a mean-preserving spread of the cost distribution) increases the degree of tax competition, i.e. it decreases the equilibrium tax rate of the large country, leads to higher outflows of its tax base and thus decreases its equilibrium tax revenues. Similar effects hold for a higher substitutability across varieties.
The EU Commission's Proposal for a Financial Transaction Tax (with  John Vella and Clemens Fuest)
British Tax Review, December 2011
CBT Working Paper 11/17 (December 2011) download


Fall 2013   Econ 520 (MSPE): International Trade Theory
                Econ 520 (PhD)International Trade Theory


CBT Doctoral Meeting 2012

CBT Doctoral Meeting 2011