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Credit Constraints, Technology Choice and Exports - A Firm Level Study for Latin American Countries

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  • Hasan, Syed M.

Abstract

This paper introduces technology choice and credit access constraints in Melitz (2003) model under a dynamic setting to explain the factors that limit the prospects of a firm from availing trade liberalization benefits. Two such constraints which are specifically relevant in a developing country context are firm's access to credit and frontier level technology. The theoretical model confirms that firms face varying levels of credit constraints depending on their initial productivity and small firms are more constrained compared to large firms. Thus credit constrained firms operating below the production frontier may never be able to cross the minimum productivity threshold required to enter and sustain in a foreign market. The empirical evidence of the model is derived by analyzing the firm level data for five Latin American countries. The empirical findings indicate that firms are constrained both in technology adoption and the extensive margin of trade The study is significant as it focuses on firm level constraints which impact a country's participation in international trade by analyzing both theoretically and empirically the impact of credit constraints on the extensive and intensive margins of trade. An important policy implication of this study, for increasing exports, could be the diversion of public resources from subsidizing production to extending credits to prospective exporters which will ultimately result in directing resources towards more productive sectors of the economy.

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Bibliographic Info

Paper provided by Agricultural and Applied Economics Association in its series 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. with number 149742.

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Date of creation: 2013
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Handle: RePEc:ags:aaea13:149742

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Related research

Keywords: Credit; Innovation; Constraints; Firm; Export; Monopolistic; Technology; International Development; International Relations/Trade; Productivity Analysis; F12; F14; F16;

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  1. Bernard, Andrew & Redding, Stephen J & Schott, Peter, 2004. "Comparative Advantage and Heterogenous Firms," CEPR Discussion Papers 4622, C.E.P.R. Discussion Papers.
  2. Kalina Manova, 2008. "Credit Constraints, Heterogeneous Firms, and International Trade," NBER Working Papers 14531, National Bureau of Economic Research, Inc.
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Cited by:
  1. Wagner, Joachim, 2013. "Credit constraints and exports: A survey of empirical studies using firm level data," Working Paper Series in Economics and Institutions of Innovation 334, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.

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