Competitive Pressure, Export Status and Financial Constraints in Transition Economies

Abstract

This paper examines the relationship between competitive pressure and financial constraints using firm-level survey data from 27 transition economies of East Europe and Central Asia. Firms exposed to greater competitive pressure from domestic and foreign sources are found to be more likely to report serious financial constraints, to be greatly affected by credit rationing, and to pledge more collateral. The association between credit rationing and competitive pressure does not hold for exporters, suggesting that export activities improve ex-post firms’ access to credit by signaling their resilience to domestic and foreign competition. Firms with foreign ownership are also found to be less affected by financial constraints and credit rationing, as they rely less intensely on bank credit.