Exporters, importers and credit constraints

Mirabelle Muûls

doi:10.1016/j.jinteco.2014.12.003

Abstract

This paper analyzes the interaction between credit constraints and trading behavior, decomposing trade in extensive and intensive margins. I construct a unique dataset containing firm-level trade transaction data, balance sheets and credit scores from an independent credit insurance company for Belgian manufacturing firms between 1999 and 2007. Firms are more likely to be exporting or importing if they enjoy lower credit constraints. Also, firms that have better credit rating export and import more. Importing and exporting behaviors differ in how both the level and growth of the various margins of trade are related to credit constraints in one important dimension. In the case of exports, it is the intensive and extensive margins of exports in terms of both product and destinations that are significantly associated with credit constraints whereas for imports it is the extensive margin in terms of products only.

Highlights

When the economy enters a recession and a credit crunch shakes the financial sector, or when they suffer other types of shocks, firms might find it harder to access credit
I focus on understanding the impact of credit constraints on the growth in total imports and exports, decomposing them through the extensive and intensive margins of exporters and importers through time, both at the destination and the product level. This can be written as: DVi,t = DCi,t ⇥ DPi,t ⇥ DIi,t where DVi,t is the growth in the total value of exports or imports between t-1 and time t, DCi,t is the change in the number of markets exported to or imported from, i.e. the extensive margin in terms of countries, DPi,t is the change in the number of products exported or imported, i.e. the extensive margin in terms of products, and DIi,t the change in the average value exported/imported per country-product, what I denote the intensive margin
I show that credit constraints matter for export and import volumes and patterns

Summary

Introduction

When the economy enters a recession and a credit crunch shakes the financial sector, or when they suffer other types of shocks, firms might find it harder to access credit. This paper considers the determinants of firm trading patterns by matching firmlevel trade transactions data with individual, time-varying credit ratings It seeks to analyse the interactions between financial or credit constraints on the one hand and exports and imports on the other. Exploiting data available from the international firm-level data from the World Bank Enterprise Surveys, Wang (2011) reports that the probability of exporting and the export volume increase with age, which is consistent with the hypothesis that firms need to accumulate enough collateral before they can borrow enough funds to profitably export This paper extends this literature by analysing the extensive margins at the level of destinations and products as.

The Belgian Balance Sheet and Trade Transaction Data

Measuring Credit Constraints: the Coface score

Export or import status

The effects of credit constraints over time

Extensive and intensive margin for exports

Findings

Extensive and intensive margin for imports

Conclusion