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The Decision to Import Capital Goods in India: Firms' Financial Factors Matter

Listed author(s):
  • Maria Bas

    ()

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Antoine Berthou

    ()

    (Banque de France)

Are financial constraints preventing firms from importing capital goods? Sourcing capital goods from foreign countries is costly and requires internal or external financial resources. A simple model of foreign technology adoption shows that credit constraints act as a barrier to importing capital goods under imperfect financial markets. In our study, we investigate this prediction using detailed balance-sheet data from Indian manufacturing firms having reported information on financial statements and imports by type of good over the period 1997–2006. Our empirical findings shed new light on the micro determinants of firms' choices to import capital goods. Baseline estimation results show that firms with a lower leverage and higher liquidity are more likely to source their capital goods from foreign countries. Quantitatively, a 10 percentage point improvement of the leverage or liquidity ratio increases the probability of importing capital goods by 11 percent to 13 percent respectively. Different robustness tests demonstrate that these results are not driven by omitted variable bias related to changes in firm observable characteristics as well as ownership status. These findings are also robust to alternative specifications dealing with the potential reverse causality issues.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number hal-01297745.

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Date of creation: Feb 2012
Publication status: Published in World Bank Economic Review, Oxford University Press (OUP), 2012, 26 (3)
Handle: RePEc:hal:cesptp:hal-01297745
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01297745
Contact details of provider: Web page: https://hal.archives-ouvertes.fr/

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