The Demand for Import Documentary Credit in Lebanon

This paper examines the demand for import documentary credit in Lebanon. Five explanatory variables are selected that stand respectively for risk, price, size, conjecture, and availability of credit. As expected, the long run elasticities are significantly higher than the short run ones. Risk has an adverse impact. Interest rate elasticities, or price elasticities, are all negative and statistically significant except for bills for collection which are paid in cash at presentation of the shipping documents, and that do not depend on the interest rate. Size and conjectural elasticities are all positive and statistically significantly different from zero. As expected, the availability of credit is only important for opened and utilized letters of credit and not for outstanding documentary credit and bills for collection. In the long run risk, price, and conjectural elasticities are all statistically insignificantly different from one in absolute values, but, surprisingly, long run size elasticities are statistically significantly less than +1. The paper concludes that the determinants of the demand for import documentary credit in Lebanon are similar to those of the demand for any other good or asset.