Credit Constraints, Quality, and Export Prices: Theory and Evidence from China
Edwin L.-C. Lai () and
Yao Li ()
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Edwin L.-C. Lai: Department of Economics, Hong Kong University of Science and Technology
No 2015-02, HKUST IEMS Working Paper Series from HKUST Institute for Emerging Market Studies
This paper presents theory and evidence that tighter credit constrains force firms to produce lower quality. The paper develops a quality sorting model that predicts that tighter credit constraints faced by a firm reduce its optimal prices due to its choice of lower-quality products. Conversely, when quality cannot be chosen by a firm in an efficiency sorting model, prices increase as firms face tighter credit constraints. An empirical analysis using Chinese bank loans data and a merged sample based on Chinese firm-level data and Chinese customs data strongly supports quality sorting and confirms the mechanism of quality adjustment.
Keywords: credit constraints; China; quality sorting; credit access; credit needs; quality; export prices; heterogeneous firms (search for similar items in EconPapers)
JEL-codes: F1 F3 D2 G2 L1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cna and nep-int
Date: 2015-01, Revised 2015-01
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http://iems.ust.hk/wp-content/uploads/2015/02/IEMSWP2015-02.pdf First version, 2015 (application/pdf)
Journal Article: Credit constraints, quality, and export prices: Theory and evidence from China (2015)
Working Paper: Credit Constraints, Quality, and Export Prices: Theory and Evidence from China (2013)
Working Paper: Credit Constraints, Quality, and Export Prices: Theory and Evidence from China (2012)
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Persistent link: http://EconPapers.repec.org/RePEc:hku:wpaper:201502
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