Credit Constraints, Export Mode and Firm Performance: An Investigation of China's Private Enterprises

Abstract

Firms can export either directly or through a trade intermediary (indirect exporting). This paper examines how financial constraints determine whether firms export directly or indirectly, and how this choice affects firm performance. For this investigation, we use the most recent Chinese private firm-level data, collected in 2011 by the World Bank. We establish two main results. First, indirect exporters face higher financial constraints than direct exporters. Second, indirect exporters are less productive and profitable than direct exporters. In addition, we rationalize these patterns with a simple model that incorporates credit constraints and imperfect contractibility in companies' export decisions. Our results imply that although globalization allows more firms in developing countries to enter the global market through indirect exporting, limited access to capital restricts firms to exporting directly and precludes them from pursuing more profitable opportunities.

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