Working Paper: NBER ID: w16905
Authors: Kalina Manova; Shangjin Wei; Zhiwei Zhang
Abstract: This paper provides firm-level evidence that credit constraints restrict international trade flows and affect the sectoral pattern of multinational activity. Using detailed customs data from China, we show that foreign affiliates and joint ventures have better export performance than private domestic firms in financially more vulnerable sectors. These results are stronger for destinations with higher trade costs and not driven by variation in firm size or by other sector determinants of FDI. Our findings are consistent with multinational subsidiaries being less liquidity constrained because they can tap additional funding from their parent company and/or access foreign capital markets. More broadly, they suggest that FDI can alleviate the impact of domestic financial market imperfections on aggregate growth, trade and private sector development.
Keywords: credit constraints; international trade; multinational corporations; foreign direct investment; China
JEL Codes: F10; F14; F23; F36; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Credit constraints (E51) | International trade flows (F10) |
| Credit constraints (E51) | Export performance (E23) |
| Foreign ownership (F23) | Export performance (E23) |
| Foreign affiliates and joint ventures (F23) | Liquidity constraints (E51) |
| Financial frictions (G19) | Firm selection into exporting (F23) |
| Financial frictions (G19) | Global sales, product scope, and number of destinations (F61) |
| Foreign ownership alleviates credit constraints (G32) | Trade (F19) |