NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Exports and Credit Constraints Under Incomplete Information: Theory and Evidence from China

Robert C. Feenstra, Zhiyuan Li, Miaojie Yu

NBER Working Paper No. 16940
Issued in April 2011
NBER Program(s):   ITI

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 needed for first-best production. The longer time needed for export shipments induces a tighter credit constraint on exporters than on purely domestic firms, even in the exporters' home market. Greater risk faced by exporters also affects the credit extended by banks. Extra fixed costs reduce exports on the extensive margin, but can be offset by collateral held by exporting firms. The empirical application to Chinese firms strongly supports these theoretical results, and we find a sizable impact of the financial crisis in reducing exports.

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Document Object Identifier (DOI): 10.3386/w16940

Exports and Credit Constraints under Incomplete Information: Theory and Evidence from China,” Review of Economics and Statistics, forthcoming 2014, with Zhiyuan Li and Miaojie Yu.

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