Exports and Credit Constraints Under Incomplete Information: Theory and Evidence from China

Robert Feenstra, Zhiyuan Li () and Miaojie Yu

No 16940, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: D8 F1 G2 (search for similar items in EconPapers)
Date: 2011-04
New Economics Papers: this item is included in nep-cna, nep-int and nep-tra
Note: ITI
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Citations: View citations in EconPapers (110)

Published as “Exports and Credit Constraints under Incomplete Information: Theory and Evidence from China,” Review of Economics and Statistics, forthcoming 2014, with Zhiyuan Li and Miaojie Yu.

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