Exports and Credit Constraints under Incomplete Information: Theory and Evidence from China
Robert Feenstra， Zhiyuan Li， Miaojie Yu
 
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 that firms' would need for optimal 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. In our application to Chinese firms, we find that the credit constraint is more stringent as a firm's export share grows, as the time to ship for exports is lengthened, and as there is greater dispersion of firms' productivities reflecting more incomplete information.
 
JEL: F1, F3, D9, G2
 
Keywords: Export, credit constraint, incomplete information, heterogeneous productivity, Chinese firms

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