Asset Level Heterogeneity, Competition and Export Incentives: The Role of Credit Rationing

32 Pages Posted: 15 Apr 2020

See all articles by Sugata Marjit

Sugata Marjit

Indian Institute of Foreign Trade; Centre for Studies in Social Sciences, Calcutta; City University of Hong Kong (CityUHK) - Department of Economics & Finance

Moushakhi Ray

affiliation not provided to SSRN

Date Written: 2020

Abstract

Firm heterogeneity is mostly discussed in the literature from the viewpoint of productivity differential. In contrast this paper recognizes wealth heterogeneity as an important factor that results in firm heterogeneity. The issue of wealth heterogeneity and export incentive through credit market imperfection over the life cycle of a firm remains largely unaddressed in the literature. This paper studies the dynamics of wealth heterogeneity and export incentive of credit rationed firms through asset building. The theoretical and empirical results indicate that an increase in the initial level of competition implies greater export incentive. However, over the life cycle of a firm, the role of competition is impacted by the intensity of capital accumulation and the initial level of wealth. Greater local competition before the entry of firms in the export market hurts export incentive by limiting cash flows and asset build up. Thus low profits due to competition allows firms to look for export opportunities but lower cash flows hurt such incentives.

Keywords: export incentive, credit market imperfections, technology, competition, asset level heterogeneity

JEL Classification: F100, F140, G100, G200

Suggested Citation

Marjit, Sugata and Ray, Moushakhi, Asset Level Heterogeneity, Competition and Export Incentives: The Role of Credit Rationing (2020). CESifo Working Paper No. 8208, Available at SSRN: https://ssrn.com/abstract=3576285

Sugata Marjit (Contact Author)

Indian Institute of Foreign Trade ( email )

New Delhi
QUTUB INSTITUTIONAL AREA
NEW DELHI, 110016
India

Centre for Studies in Social Sciences, Calcutta ( email )

R 1, B.P. Township
Kolkata, West Bengal, India
Kolkata, West Bengal 700094
India

City University of Hong Kong (CityUHK) - Department of Economics & Finance ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

Moushakhi Ray

affiliation not provided to SSRN

No Address Available

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