Internal and external financing and imports: Firm-level evidence from India

This paper provides novel empirical evidence on the impact of internal and external financing on imports in India using firm-level data from 2002 to 2019. By analyzing both import participation and volume, the study examines the distinct and interconnected roles of these financing sources. Results show that firms with greater access to either source are more likely to import and in larger volumes, with external financing having a stronger influence. Firms also tend to alternate between internal and external funds, suggesting that these sources act as substitutes. Financing is particularly relevant for the import of intermediate and capital goods, while its impact on final goods is negligible. Firm-level heterogeneity shows that large firms primarily use external funds to expand import volumes, whereas smaller firms rely on both sources to initiate imports. Younger and publicly listed firms appear more responsive to financing, likely reflecting their growth orientation and broader access to capital. Firms operating without fiscal support also display greater reliance on financial access. These results are robust across alternative financing indicators, control specifications, and estimation methods. Overall, the study adds to the understanding of how firms’ capital structure relates to their import behavior in emerging economies.