Firm Exports and Processing Trade under Credit Constraints
76 Pages Posted: 29 Dec 2020
Date Written: May 9, 2020
We provide ﬁrm-level evidence that processing trade helps relax the restriction of credit constraints on exports. We show that ﬁrms with higher processing trade share have better export performance than those with lower processing trade share in ﬁnancially more vulnerable sectors. The results are not driven by ﬁrm size, time, or other sector characteristics. Our ﬁndings are consistent with the fact that processing trade is less credit-constrained because it entails lower upfront costs and thus has less working capital needs. Our ﬁndings, thus, highlight the importance of processing trade in ﬁrm exports, particularly in developing countries with imperfect capital markets.
Keywords: Credit Constraints; Processing Trade; Exports
JEL Classification: F1; G2
Suggested Citation: Suggested Citation