Exports and Credit Constraints Under Incomplete Information: Theory and Evidence from China
49 Pages Posted: 4 Apr 2011
There are 2 versions of this paper
Exports and Credit Constraints Under Incomplete Information: Theory and Evidence from China
Exports and Credit Constraints Under Incomplete Information: Theory and Evidence from China
Date Written: April 1, 2011
Abstract
This paper examines why credit constraints for domestic and exporting firms arise in a setting where banks do not observe firms' productivities. To maintain incentive-compatibility, banks lend below the amount needed for first-best production. The longer time needed for export shipments induces a tighter credit constraint on exporters than on purely domestic firms, even in the exporters' home market. Greater risk faced by exporters also affects the credit extended by banks. Extra fixed costs reduce exports on the extensive margin, but can be offset by collateral held by exporting firms. The empirical application to Chinese firms strongly supports these theoretical results, and we find a sizable impact of the financial crisis in reducing exports.
Keywords: Export, Credit Constraint, Asymmetric Information, Heterogeneous Productivity, Chinese Firms
JEL Classification: F1, F3, D9, G2
Suggested Citation: Suggested Citation
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