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

50 Pages Posted: 11 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 - School of Economics

Miaojie Yu

Peking University - China Center for Economic Research (CCER)

Multiple version iconThere are 2 versions of this paper

Date Written: April 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.

Suggested Citation

Feenstra, Robert C. and Li, Zhiyuan and Yu, Miaojie, Exports and Credit Constraints Under Incomplete Information: Theory and Evidence from China (April 2011). NBER Working Paper No. w16940. Available at SSRN: https://ssrn.com/abstract=1805442

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 - School of Economics ( email )

777 Guoding Road
Shanghai, 200433
China

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

Register to save articles to
your library

Register

Paper statistics

Downloads
27
Abstract Views
658
PlumX Metrics