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

  • Zhiyuan Li


  • 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
Date of revision:
Handle: RePEc:eab:tradew:22888
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  1. Sandra Poncet & Jérôme Héricourt, 2009. "FDI and credit constraints: firm level evidence from China," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00633901, HAL.
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  14. 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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  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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