| 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. |