Does Finance Play a Role in Exporting for Service Firms? Evidence from India

Abstract

AbstractThe importance of finance for exporting goods is well understood in the literature. Yet, despite the growing magnitude and importance of service exports, the question whether service firms rely on external finance for exporting remains unanswered by the existing literature. We address this overlooked area by studying whether long‐ and short‐term borrowing matters for the exporting decisions and the levels exported by Indian service firms. To this end, we use an unbalanced panel of service firms for the years 1999–2007 from the Prowess data set compiled by the Centre for Monitoring the Indian Economy. In contrast to some findings for the manufacturing industry, we found that finance is not a significant determinant of Indian service firms' exporting activity. Possibly, the different nature of costs associated with the exports of services restrains the impact of finance on exporting. Interestingly, in line with previous research on goods exports, we found that some nonfinancial variables such as firm size, total factor productivity and technology investments are significant factors motivating the exporting decision and the level of exports of Indian service firms.