Financing constraints, firm dynamics, export decisions, and aggregate productivity
Andrea Caggese () and
Vicente Cuñat ()
LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library
We develop a dynamic industry model where ﬁnancing frictions aﬀect the entry decisions of new ﬁrms in the home market, as well as the riskiness of operating ﬁrms. These two factors in turn determine a joint endogenous distribution of ﬁrms across productivity, volatility and ﬁnancial wealth. We show that this endogenous distribution is crucial to understand export and productivity dynamics after a trade liberalization. In particular, the calibrated model predicts that ﬁnancing frictions have an ambiguous eﬀect on the number of ﬁrms starting to export. They reduce the ability of ﬁrms to ﬁnance the ﬁxed costs necessary to start exporting, but they also change the distribution of domestic ﬁrms so that most of them ﬁnd more proﬁtable to access foreign markets. More importantly, the model predicts that ﬁnancing constraints, even when they have a negligible net eﬀect on the number of exporting ﬁrms, reduce the aggregate productivity gains induced by trade liberalization by 30% to 50%, because they distort the selection into export of the most productive ﬁrms. In the second part of the paper we verify the main predictions of the model with a rich dataset of Italian manufacturing ﬁrms for the period 1995-2003.
Keywords: Financing Constraints; Firm Dynamics; Exports; Productivity (search for similar items in EconPapers)
JEL-codes: F3 G3 (search for similar items in EconPapers)
Pages: 54 pages
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Journal Article: Financing Constraints, Firm Dynamics, Export Decisions, and Aggregate Productivity (2013)
Working Paper: Financing Constraints, Firm Dynamics, Export Decisions and Aggregate productivity (2011)
Working Paper: Financing Constraints, Firm Dynamics, Export Decisions, and Aggregate productivity (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:43160
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