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Exports Versus FDI Revisited: Does Finance Matter?

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  • Buch, Claudia M.
  • Kesternich, Iris
  • Lipponer, Alexander
  • Schnitzer, Monika

Abstract

This paper explores the impact of financial constraints on the internationalization strategies of firms. It contributes to the literature by focusing on three aspects: First, the paper studies the impact of financial constraints on exporting relative to FDI. Consistent with theory, the empirical results confirm that the impact of financial constraints is stronger for FDI than for exporting. Second, the paper analyzes the extensive and the intensive margins and finds that financial frictions matter for both. Third, the paper explores the impact on manufacturing as compared to service industries and shows that firms in service industries are affected more than firms in manufacturing. The paper also identifies a threshold effect: Financial constraints do not matter for small firms whose productivity seems to be too low to consider international expansions.

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Bibliographic Info

Paper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 340.

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Date of creation: Nov 2010
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Handle: RePEc:trf:wpaper:340

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Keywords: Multinational firms; exports versus FDI; financial constraints;

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References

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  1. Logan Lewis & Linda Tesar & Andrei Levchenko, 2010. "The Collapse of International Trade During the 2008-2009 Crisis: In Search of the Smoking Gun," 2010 Meeting Papers, Society for Economic Dynamics 109, Society for Economic Dynamics.
  2. Ai, Chunrong & Norton, Edward C., 2003. "Interaction terms in logit and probit models," Economics Letters, Elsevier, Elsevier, vol. 80(1), pages 123-129, July.
  3. Harald Oberhofer & Michael Pfaffermayr, . "FDI versus Exports. Substitutes or Complements? A Three Nation Model and Empirical Evidence," Working Papers, Faculty of Economics and Statistics, University of Innsbruck 2007-28, Faculty of Economics and Statistics, University of Innsbruck.
  4. Thomas Chaney, 2013. "Liquidity Constrained Exporters," NBER Working Papers 19170, National Bureau of Economic Research, Inc.
  5. Berman, Nicolas & Héricourt, Jérôme, 2010. "Financial factors and the margins of trade: Evidence from cross-country firm-level data," Journal of Development Economics, Elsevier, Elsevier, vol. 93(2), pages 206-217, November.
  6. Ber, Hedva & Blass, Asher & Yosha, Oved, 2002. "Monetary Policy in an Open Economy: The Differential Impact on Exporting and Non-Exporting Firms," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3191, C.E.P.R. Discussion Papers.
  7. Amiti, Mary & Weinstein, David E., 2009. "Exports and Financial Shocks," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7590, C.E.P.R. Discussion Papers.
  8. Greenaway, David & Guariglia, Alessandra & Kneller, Richard, 2007. "Financial factors and exporting decisions," Journal of International Economics, Elsevier, Elsevier, vol. 73(2), pages 377-395, November.
  9. Manova, Kalina, 2008. "Credit constraints, equity market liberalizations and international trade," Journal of International Economics, Elsevier, Elsevier, vol. 76(1), pages 33-47, September.
  10. Ann E. Harrison & Margaret S. McMillan, 2001. "Does Direct Foreign Investment Affect Domestic Firms' Credit Constraints?," NBER Working Papers 8438, National Bureau of Economic Research, Inc.
  11. David Greenaway & Richard Kneller, 2007. "Firm heterogeneity, exporting and foreign direct investment," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 117(517), pages F134-F161, 02.
  12. Kaplan, Steven N & Zingales, Luigi, 1997. "Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(1), pages 169-215, February.
  13. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3381, C.E.P.R. Discussion Papers.
  14. Harrison, Ann E. & McMillan, Margaret S., 2003. "Does direct foreign investment affect domestic credit constraints?," Journal of International Economics, Elsevier, Elsevier, vol. 61(1), pages 73-100, October.
  15. Bayraktar, Nihal & Sakellaris, Plutarchos & Vermeulen, Philip, 2005. "Real versus financial frictions to capital investment," Working Paper Series, European Central Bank 0566, European Central Bank.
  16. Sarah Bridges & Alessandra Guariglia, 2008. "Financial Constraints, Global Engagement, And Firm Survival In The United Kingdom: Evidence From Micro Data," Scottish Journal of Political Economy, Scottish Economic Society, vol. 55(4), pages 444-464, 09.
  17. Edward C. Norton & Hua Wang & Chunrong Ai, 2004. "Computing interaction effects and standard errors in logit and probit models," Stata Journal, StataCorp LP, StataCorp LP, vol. 4(2), pages 154-167, June.
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