Exporting and Investment under Credit Constraints

20  January 2022    3:00 pm CET

Walter Steingress, Bank of Canada

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We examine the relationship between firm performance and export entry credit constraints. The existing research assumes that variation in firm financial conditions identifies credit constraints. A critical assumption is that financial conditions do not affect real outcomes (performance, exporting, or investment). To relax this assumption, we focus on the direct effect of firm fundamentals and financial conditions on firm performance. This approach distinguishes between firms who choose not to export because it is unprofitable from firms that do not export because of binding credit constraints. Our empirical specification allows firm characteristics to enter both the selection into exporting and return from exporting regressions. The leverage response heterogeneity identifies the presence of credit constraints. Using administrative Canadian firm-level data, our findings show that new exporters (a) increase their productivity, (b) raise their leverage ratio and (c) increase investment. We estimate that about 15 percent of Canadian manufacturers do not engage in export-induced productivity growth because of credit constraints.

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Walter Steingress

Walter Steingress is a Principal Researcher in the International Studies Division of the International Department. His primary interests lie within the field of international macroeconomics. Walter’s other research interests include migration and international trade. Before joining the Bank of Canada, Walter held an appointment at the Bank of France. He earned his Ph.D. from the University of Montreal and holds a master’s degree from Boston University.

Related literature:
Lileeva, Alla, and Daniel Trefler. "Improved access to foreign markets raises plant-level productivity… for some plants." The Quarterly journal of economics 125, no. 3 (2010): 1051-1099.

Manova, Kalina. "Credit constraints, heterogeneous firms, and international trade." Review of Economic Studies 80, no. 2 (2013): 711-744.

Carneiro, Pedro, and James J. Heckman. "The evidence on credit constraints in post‐secondary schooling." The Economic Journal 112, no. 482 (2002): 705-734.


JEL classification: F10, F14, F36, G20, G28, G32.