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Financing constraints and exports: Evidence from manufacturing firms in India

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  • Shahana Mukherjee
  • Rupa Chanda

Abstract

This paper examines the relationship between external financing constraints and the intensive margin of exports for manufacturing firms in India. We use a sample of nearly 3200 firms over the period: 2000–2015 and construct a multivariate index proposed by Musso and Schiavo (J Evol Econ 18(2):135–149, 2008) to estimate the degree of external financing constraints. We find that an increase in the degree of external financing constraints faced is associated with lower firm-level exports and this result holds even after accounting for endogeneity issues. We next examine whether business group-affiliated firms are less dependent on external finance to support their overseas sales. We find that financing constraints are a significant binding factor even for firms with access to internal capital markets. Moreover, we find that firm size matters, as a decline in the financial health of small- and medium-sized firms is associated with a significantly larger decline in their export levels. Finally, we find some evidence of industry-level heterogeneity, as financing constraints lead to a more pronounced decline in the exports of firms in industries with greater dependence on external finance.

Suggested Citation

  • Shahana Mukherjee & Rupa Chanda, 2021. "Financing constraints and exports: Evidence from manufacturing firms in India," Empirical Economics, Springer, vol. 61(1), pages 309-337, July.
    • Handle: RePEc:spr:empeco:v:61:y:2021:i:1:d:10.1007_s00181-020-01865-9
    DOI: 10.1007/s00181-020-01865-9
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    References listed on IDEAS

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    Cited by:

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    2. Sugandha Huria & Kriti Sharma & Neha Jain & Ashley Jose, 2022. "Digitalization and Exports: A case of Indian Manufacturing MSMEs," Working Papers 2261, Indian Institute of Foreign Trade.

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    More about this item

    Keywords

    Financial constraints; Intensive margin of exports; Firm size; Firm heterogeneity; Endogeneity; External financial dependence;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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