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

49 Pages Posted: 4 Apr 2011

See all articles by Robert C. Feenstra

Robert C. Feenstra

University of California, Davis - Department of Economics; National Bureau of Economic Research (NBER)

Zhiyuan Li

Shanghai University of Finance and Economics; University of California, Davis

Miaojie Yu

Peking University - China Center for Economic Research (CCER)

Multiple version iconThere are 2 versions of this paper

Date Written: April 1, 2011

Abstract

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.

Keywords: Export, Credit Constraint, Asymmetric Information, Heterogeneous Productivity, Chinese Firms

JEL Classification: F1, F3, D9, G2

Suggested Citation

Feenstra, Robert C. and Li, Zhiyuan and Yu, Miaojie, Exports and Credit Constraints Under Incomplete Information: Theory and Evidence from China (April 1, 2011). Available at SSRN: https://ssrn.com/abstract=1801590 or http://dx.doi.org/10.2139/ssrn.1801590

Robert C. Feenstra (Contact Author)

University of California, Davis - Department of Economics ( email )

One Shields Drive
Davis, CA 95616-8578
United States
916-752-9240 (Phone)
916-752-9382 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Zhiyuan Li

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

University of California, Davis ( email )

One Shields Avenue
Davis, CA 95616
United States

HOME PAGE: http://www.econ.ucdavis.edu/graduate/zhyli/

Miaojie Yu

Peking University - China Center for Economic Research (CCER) ( email )

Beijing, Beijing 100871
China
+86-10-6275-3109 (Phone)

HOME PAGE: http://mjyu.ccer.edu.cn

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