Working Paper: CEPR ID: DP7839
Authors: Claudia M. Buch; Iris Kesternich; Alexander Lipponer; Monika Schnitzer
Abstract: The crisis on international financial markets that started in 2007 has shown the potential links between the financial sector and the real economy. Exports and foreign direct investment (FDI) have declined, presumably not only because of a lack of demand, but also because of restricted access of firms to external finance. In this paper, we explore the impact of access to external finance on firms? choices to export or to engage in FDI. We simultaneously model a firm?s decision to engage in FDI and in exports, and we assess the importance of financial factors for this choice (the extensive margin) as well as for the volume of activities (the intensive margin). We find that financial frictions matter, in particular for the decision to engage internationally.
Keywords: exports; FDI; financial constraints; heterogeneity; multinational firms; productivity
JEL Codes: F2; G2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial Constraints (D20) | FDI (F23) |
| Financial Constraints (D20) | Exports (F10) |
| Higher Productivity (O49) | FDI (F23) |
| Higher Productivity (O49) | Exports (F10) |
| Firm Size (L25) | Financial Constraints (D20) |
| Financial Constraints (D20) | Volume of Exports (F10) |
| Financial Constraints (D20) | Volume of Affiliate Sales (L81) |
| Lack of Internal Funds (G32) | Small Firms (L25) |
| Financial Constraints (D20) | Extensive Margin of Foreign Activities (F23) |
| Financial Constraints (D20) | Intensive Margin of Foreign Activities (F29) |