Services Trade and Credit Frictions: Evidence from Matched Bank-Firm Data

Abstract

This paper investigates the relationship between bank credit and exports of services by Italian firms. In order to identify the role of credit supply in services exports we use matched data on bank-firm relationships and the shocks affecting banks’ funding during the sovereign debt crisis. The study suggests that credit supply shocks had a significant impact on services exports: a bank credit reduction of 1% led to a fall in exports of about 0.40%. These results hold even after controlling for alternative sources of firms’ external finance, unobserved credit demand heterogeneity and a number of robustness checks.