The Decision to Import Capital Goods in India: Firms' Financial Factors Matter
AbstractAre financial constraints preventing firms from importing capital goods? Sourcing capital goods from foreign countries is costly and requires internal or external financial resources. A simple model of foreign technology adoption shows that credit constraints act as a barrier to importing capital goods under imperfect financial markets. In our study, we investigate this prediction using detailed balance-sheet data from Indian manufacturing firms having reported information on financial statements and imports by type of good over the period 1997-2006. Our empirical findings shed new light on the micro determinants of firms' choices to import capital goods. Baseline estimation results show that firms with a lower leverage and higher liquidity are more likely to source their capital goods from foreign countries. Quantitatively, a 10 percentage point improvement of the leverage or liquidity ratio increases the probability of importing capital goods by 11 percent to 13 percent respectively. Different robustness tests demonstrate that these results are not driven by omitted variable bias related to changes in firm observable characteristics as well as ownership status. These findings are also robust to alternative specifications dealing with the potential reverse causality issues. Copyright 2012, Oxford University Press.
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Bibliographic InfoArticle provided by World Bank Group in its journal The World Bank Economic Review.
Volume (Year): 26 (2012)
Issue (Month): 3 ()
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Other versions of this item:
- Maria Bas & Antoine Berthou, 2011. "The Decision to Import Capital Goods in India: Firms' Financial Factors Matter," Working Papers 2011-06, CEPII research center.
- F10 - International Economics - - Trade - - - General
- F14 - International Economics - - Trade - - - Empirical Studies of Trade
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Financing, Investment, and Capacity
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