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

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Author Info

  • 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
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Handle: RePEc:eab:tradew:22888

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Related research

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

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  1. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 70(2), pages 317-341, 04.
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  7. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, Econometric Society, vol. 71(6), pages 1695-1725, November.
  8. 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.
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  11. Kleibergen, F.R. & Paap, R., 2003. "Generalized Reduced Rank Tests using the Singular Value Decomposition," Econometric Institute Research Papers EI 2003-01, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
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  14. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, Econometric Society, vol. 64(6), pages 1263-97, November.
  15. D. Qiu, Larry, 1999. "Credit Rationing and Patterns of New Product Trade," Journal of Economic Integration, Center for Economic Integration, Sejong University, Center for Economic Integration, Sejong University, vol. 14, pages 75-95.
  16. Carsten A. Holz, 2004. "China's Statistical System in Transition: Challenges, Data Problems, and Institutional Innovations," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 50(3), pages 381-409, 09.
  17. Kalina Manova, 2008. "Credit Constraints, Heterogeneous Firms, and International Trade," NBER Working Papers 14531, National Bureau of Economic Research, Inc.
  18. Yu, Miaojie, 2010. "Trade, democracy, and the gravity equation," Journal of Development Economics, Elsevier, vol. 91(2), pages 289-300, March.
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Cited by:
  1. Qing Gong Yang & Paul Temple, 2009. "Reform and Competitive Selection in China: An Analysis of Firm Exits," School of Economics Discussion Papers, School of Economics, University of Surrey 0409, School of Economics, University of Surrey.

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