EXPORTS AND CREDIT CONSTRAINTS UNDER INCOMPLETE INFORMATION: THEORY AND EVIDENCE FROM CHINA

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 that firms need for optimal production. The longer time needed for export shipments i...

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Bibliographic Details
Published in:The review of economics and statistics 2014-10, Vol.96 (4), p.729-744
Main Authors: Feenstra, Robert C., Li, Zhiyuan, Yu, Miaojie
Format: Article
Language:English
Subjects:
Bank loans
Banks
China
Coefficients
Credit
Credit control
Exporters
Exports
Financial services
Industrial productivity
Information
Loan payments
Payments
Productivity
Revenue
Studies
Trade finance
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Summary: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 that firms need for optimal production. The longer time needed for export shipments induces a tighter credit constraint on exporters than on purely domestic firms. In our application to Chinese firms, we find that the credit constraint is more stringent as a firm's export share grows, as the time to ship for exports is lengthened, and as there is greater dispersion of firms' productivities, reflecting more incomplete information.
ISSN:0034-6535
1530-9142
DOI:10.1162/rest_a_00405