Firm Exports and Processing Trade under Credit Constraints

76 Pages Posted: 29 Dec 2020

See all articles by Jie Li

Jie Li

Central University of Finance and Economics (CUFE)

Naixin Zhang

Central University of Finance and Economics (CUFE) - Chinese Academy of Finance and Development

Zhigang Ouyang

affiliation not provided to SSRN

Date Written: May 9, 2020

Abstract

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

Li, Jie and Zhang, Naixin and Ouyang, Zhigang, Firm Exports and Processing Trade under Credit Constraints (May 9, 2020). Available at SSRN: https://ssrn.com/abstract=3719137 or http://dx.doi.org/10.2139/ssrn.3719137

Jie Li (Contact Author)

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Naixin Zhang

Central University of Finance and Economics (CUFE) - Chinese Academy of Finance and Development ( email )

39 South College Road
Beijing
China

Zhigang Ouyang

affiliation not provided to SSRN

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