Firm Exports and Multinational Activity Under Credit Constraints

42 Pages Posted: 12 Jan 2010 Last revised: 4 Sep 2011

See all articles by Kalina Manova

Kalina Manova

University College London - Department of Economics

Shang-Jin Wei

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); International Monetary Fund (IMF); Tsinghua University - School of Economics & Management

Zhiwei Zhang

Nomura Holdings, Inc. (NHI) - Nomura Securities Co., Ltd.; International Monetary Fund (on leave)

Multiple version iconThere are 2 versions of this paper

Date Written: December 15, 2009

Abstract

This paper provides firm-level evidence that credit constraints restrict international trade flows and affect the pattern of foreign direct investment. Using detailed data from China, we show that foreign-owned affiliates and joint ventures have better export performance than private domestic firms, and that this advantage is systematically greater in sectors at higher levels of financial vulnerability measured in a variety of ways. These patterns are manifest in firms' export sales, export product scope and number of export destinations. They are also more pronounced when firms face higher trade costs. This evidence indicates that limited credit availability hinders firms' trade flows, and is consistent with foreign affiliates being less constrained because they can access additional funding from their parent company. Our results further imply that financial frictions and host-country financial institutions affect the sectoral and spatial composition of MNC activity. More broadly, our findings suggest that FDI can compensate for domestic financial market imperfections and alleviate their impact on aggregate growth, trade and private sector development.

Keywords: international trade, MNCs, export margins, credit constraints

JEL Classification: F10, F14, F23, F36, G32

Suggested Citation

Manova, Kalina B. and Wei, Shang-Jin and Zhang, Zhiwei, Firm Exports and Multinational Activity Under Credit Constraints (December 15, 2009). Available at SSRN: https://ssrn.com/abstract=1534905 or http://dx.doi.org/10.2139/ssrn.1534905

Kalina B. Manova (Contact Author)

University College London - Department of Economics ( email )

Drayton House, 30 Gordon Street
30 Gordon Street
London, WC1H 0AX
United Kingdom

Shang-Jin Wei

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

International Monetary Fund (IMF)

700 19th Street, N.W.
Washington, DC 20431
United States

Tsinghua University - School of Economics & Management

Beijing, 100084
China

Zhiwei Zhang

Nomura Holdings, Inc. (NHI) - Nomura Securities Co., Ltd. ( email )

Hong Kong
Japan

International Monetary Fund (on leave) ( email )

700 19th Street N.W.
Washington, DC 20431
United States

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