Working Paper: NBER ID: w16940
Authors: Robert C. Feenstra; Zhiyuan Li; Miaojie Yu
Abstract: This paper examines why credit constraints for domestic and exporting firms arise in a setting where banks do not observe firms' productivities. To maintain incentive-compatibility, banks lend below the amount needed for first-best production. The longer time needed for export shipments induces a tighter credit constraint on exporters than on purely domestic firms, even in the exporters' home market. Greater risk faced by exporters also affects the credit extended by banks. Extra fixed costs reduce exports on the extensive margin, but can be offset by collateral held by exporting firms. The empirical application to Chinese firms strongly supports these theoretical results, and we find a sizable impact of the financial crisis in reducing exports.
Keywords: exports; credit constraints; China; financial crisis
JEL Codes: D8; F1; G2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| longer time lag in receiving payments for exports (F10) | tighter credit constraints (E51) |
| greater project risk associated with exports (F10) | tighter credit constraints (E51) |
| extra fixed costs associated with exporting (F10) | reduced extensive margin of exports (F14) |
| higher project risk for exporters (F10) | increased interest payments (E43) |
| exporting firms face tighter credit constraints (F14) | credit constraints (E51) |
| tighter credit constraints (E51) | reduced export performance (F14) |