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

  • Zhiyuan Li

    (CCER)

  • Miaojie Yu

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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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
Contact details of provider: Postal: JG Crawford Building #13, Asia Pacific School of Economics and Government, Australian National University, ACT 0200
Web page: http://www.eaber.org

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  1. 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.
  2. Gary Jefferson & Thomas Rawski & Yifan Zhang, 2008. "Productivity growth and convergence across China's industrial economy," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 6(2), pages 121-140.
  3. 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.
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  9. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Wiley Blackwell, vol. 70(2), pages 317-341, 04.
  10. 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.
  11. George S Olley & Ariel Pakes, 1992. "The Dynamics Of Productivity In The Telecommunications Equipment Industry," Working Papers 92-2, Center for Economic Studies, U.S. Census Bureau.
  12. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  13. Kalina Manova, 2008. "Credit Constraints, Heterogeneous Firms, and International Trade," NBER Working Papers 14531, National Bureau of Economic Research, Inc.
  14. 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.
  15. 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.
  16. Thomas Chaney, 2007. "Liquidity Constrained Exporters," 2007 Meeting Papers 979, Society for Economic Dynamics.
  17. Claustre Bajona & Tianshu Chu, 2004. "China's WTO Accession and Its Effect on State-Owned Enterprises," Economics Study Area Working Papers 70, East-West Center, Economics Study Area.
  18. Yu, Miaojie, 2010. "Trade, democracy, and the gravity equation," Journal of Development Economics, Elsevier, vol. 91(2), pages 289-300, March.
  19. 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.
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