Exporting and Investment under Credit Constraints

Mardi | 2021-01-26
16H00 – Webinar


Exporting is known to improve _rm performance; numerous studies report efficiency gains arising from entry into foreign markets, greater _rm-level investment, greater employment among other complementary firm-level changes. However, successful exporters inherently satisfy multiple constraints simultaneously: they find buyers for their product abroad, hire sufficient inputs, access necessary financing, and pass legal obstacles, among others. We focus on two potentially limiting constraints to successful entry into export markets: profitability and access to credit. This paper develops an empirical approach which identifies (a) the heterogeneous returns to exporting across the distribution of Canadian manufacturers and (b) the fraction of firms restricted from export markets because of credit constraints. The latter result distinguishes firms which cannot export because financial costs cause exporting to be unprofitable at market rates, from those which do not export because of a binding credit constraint. We find that exporting more than doubles labour productivity, investment and firm-leverage, but many firms still cannot access export markets due to credit frictions. We estimate that as much as 14 percent of Canadian manufacturers are potentially limited from enjoying export-induced productivity growth because of credit constraints.