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Financing Constraints, Firm Dynamics, Export Decisions, and Aggregate productivity

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  • Vicente Cunat

    (London School of Economics)

  • Andrea Caggese

    (Pompeu Fabra University)

Abstract

We develop a dynamic industry model where financing frictions affect the entry decisions of new firms in the home market, as well as the riskiness of operating firms. These two factors in turn determine a joint endogenous distribution of firms across productivity, volatility and financial wealth. We show that this endogenous distribution is crucial to understand export and productivity dynamics after a trade liberalization. In particular, the calibrated model predicts that financing frictions have an ambiguous effect on the number of firms starting to export. They reduce the ability of firms to finance the fixed costs necessary to start exporting, but they also change the distribution of domestic firms so that most of them find more profitable to access foreign markets. More importantly, the model predicts that financing constraints, even when they have a negligible net effect on the number of exporting firms, reduce the aggregate productivity gains induced by trade liberalization by 30% to 50%, because they distort the selection into export of the most productive firms. In the second part of the paper we verify the main predictions of the model with a rich dataset of Italian manufacturing firms for the period 1995-2003.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 187.

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Date of creation: 2011
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Handle: RePEc:red:sed011:187

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Cited by:
  1. Silvio Contessi & Francesca de Nicola, 2012. "What do we know about the relationship between access to finance and international trade?," Working Papers 2012-054, Federal Reserve Bank of St. Louis.
  2. Wagner, Joachim, 2012. "Credit constraints and exports: Evidence for German manufacturing enterprises," Working Paper Series in Economics and Institutions of Innovation 286, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  3. Mirabelle Muûls, 2012. "Exporters, Importers and Credit Constraints," CEP Discussion Papers dp1169, Centre for Economic Performance, LSE.
  4. Federici, Daniela & Parisi, Valentino, 2012. "Corporate taxation and exports," MPRA Paper 41012, University Library of Munich, Germany.
  5. Joachim Wagner, 2013. "Credit constraints and exports: A survey of empirical studies using firm level data," Working Paper Series in Economics 287, University of Lüneburg, Institute of Economics.
  6. Strasser, Georg, 2013. "Exchange rate pass-through and credit constraints," Journal of Monetary Economics, Elsevier, vol. 60(1), pages 25-38.

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