Finance, productivity, and exports: Theory and firm-level evidence from China

Yong Ma () and Yiqing Jiang
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Yong Ma: Renmin University of China
Yiqing Jiang: Renmin University of China

Journal of Productivity Analysis, 2025, vol. 64, issue 2, No 4, 167-187

Abstract: Abstract Building on Melitz’s (2003) framework, this study integrates a banking sector into the heterogeneous-firm trade model to examine how financial factors shape firms’ export decisions. We show that tighter financial constraints raise the productivity cutoff for foreign-market entry, thereby reducing the likelihood of exporting, while more developed financial markets lower this threshold and boost export propensity. Using panel data on Chinese A-share listed firms from 2010–2017, we empirically validate these theoretical predictions. Further analysis ranks the relative influence of financial indicators: financial market development exerts the strongest effect on export propensity, followed by financial leverage, with cash flow status playing a more limited role. Suggestive evidence also indicates that periods of heightened bank distress or contractionary monetary policy amplify the adverse impact of financial constraints. Finally, heterogeneity analysis reveals that the inhibiting effect of financial constraints is less pronounced among larger firms, state-owned enterprises (SOEs), and foreign-funded enterprises (FFEs).

Keywords: Finance; Firm productivity; Firm export decisions; F10; F14; G20; G21 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s11123-025-00770-6

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