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Exports, Productivity, and Credit Constraints : A Firmâ€ÂLevel Empirical Investigation of China

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  • Zhiyuan Li

    (CCER)

  • Miaojie Yu

Abstract

Recent Melitz-type (2003) intra-industry heterogonous trade models argue that a firm's productivity has significant effects on the firm's exports. This paper examines how a firms credit constraints as well as its productivity affect its export decisions. We imbed the firm's credit constraints into a Melitz-type general-equilibrium model by endogenizing the probability of the success of firm-specific projects. We show that, all else equal, it is easier for firms to enter the export market if (1) the probability of the success of their project is higher and consequently they have easier access to external finance from financial intermediaries; or (2) they have alternative sources, other than from financial intermediaries, to obtain funds. We test these theoretical hypotheses using firm-level data from Chinese manufacturing industries and find strong evidence supporting the predictions of the model.

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Bibliographic Info

Paper provided by East Asian Bureau of Economic Research in its series Trade Working Papers with number 22888.

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Date of creation: Jan 2009
Date of revision:
Handle: RePEc:eab:tradew:22888

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Postal: JG Crawford Building #13, Asia Pacific School of Economics and Government, Australian National University, ACT 0200
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Related research

Keywords: Credit Constraints; Heterogeneous Firms; productivity; trade;

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  1. Kalina Manova, 2008. "Credit Constraints, Heterogeneous Firms, and International Trade," NBER Working Papers 14531, National Bureau of Economic Research, Inc.
  2. Justin Yifu Lin, 2001. "Development Strategy, Viability, and Economic Convergence," William Davidson Institute Working Papers Series 409, William Davidson Institute at the University of Michigan.
  3. D. Qiu, Larry, 1999. "Credit Rationing and Patterns of New Product Trade," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 14, pages 75-95.
  4. Kleibergen, Frank & Paap, Richard, 2006. "Generalized reduced rank tests using the singular value decomposition," Journal of Econometrics, Elsevier, vol. 133(1), pages 97-126, July.
  5. Nina Pavcnik, 2002. "Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 245-276.
  6. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
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  8. Thomas Chaney, 2007. "Liquidity Constrained Exporters," 2007 Meeting Papers 979, Society for Economic Dynamics.
  9. Héricourt, Jérôme & Poncet, Sandra, 2009. "FDI and credit constraints: Firm-level evidence from China," Economic Systems, Elsevier, vol. 33(1), pages 1-21, March.
  10. J. M. C. Santos Silva & Silvana Tenreyro, 2006. "The Log of Gravity," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 641-658, November.
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  12. Harrison, Ann E. & McMillan, Margaret S., 2003. "Does direct foreign investment affect domestic credit constraints?," Journal of International Economics, Elsevier, vol. 61(1), pages 73-100, October.
  13. Yu, Miaojie, 2010. "Trade, democracy, and the gravity equation," Journal of Development Economics, Elsevier, vol. 91(2), pages 289-300, March.
  14. Gary Jefferson & Thomas Rawski & Yifan Zhang, 2008. "Productivity growth and convergence across China's industrial economy," Journal of Chinese Economic and Business Studies, Taylor and Francis Journals, vol. 6(2), pages 121-140.
  15. Holz, Carsten A. & Lin, Yi-min, 2001. "The 1997-1998 break in industrial statistics: Facts and appraisal," China Economic Review, Elsevier, vol. 12(4), pages 303-316.
  16. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-97, November.
  17. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2007. "Estimating Trade Flows: Trading Partners and Trading Volumes," NBER Working Papers 12927, National Bureau of Economic Research, Inc.
  18. Hongbin Cai & Qiao Liu, 2009. "Competition and Corporate Tax Avoidance: Evidence from Chinese Industrial Firms," Economic Journal, Royal Economic Society, vol. 119(537), pages 764-795, 04.
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