Financial constraints and exports: evidence from Portuguese manufacturing firms

This paper analyzes the links between financial constraints and firm export behavior, at the firm level, by using data on Portuguese manufacturing enterprises. Theoretical models of Chaney (2005) and Manova (2010) suggest that credit constraints are detrimental for exports but no model explains consistently why exports could improve firms´ financial health. Previous empirical literature has not yet reached a consensus on these subjects and there is a great heterogeneity in measuring financial constraints and how to assess the causality relationships; results are also quite heterogeneous. Developing a very recent trend, we approximate credit constraints by using a financial score built on eight variables; to assess the effects of exports on the financial status of firms we apply, for the first time to these types of studies, a propensity score matching with difference in differences. This procedure is used to deal with the endogeneity problems, stemming from the fact that new exporters have most likely initial better financial health. We find that firms enjoying better financial health are more likely to become exporters and that new exporters show improvements in their financial situation. These findings have important policy implications as they suggest that public intervention to support exports is clearly justified.