The Different Impact of Financial Constraints on Firm-Level Exports in Manufacturing and Service Sector: Evidence from Croatia

Abstract

Extant studies examine the role of financial constraints on the international activity of the firms. However, they are mostly focused on the manufacturing sector, traditionally perceived as tradable. The literature recently recognized the growing role of service sector in international trade, but the analysis of financial constraint on exporting behaviour of this segment of the economy has seldom been performed. This is of particular importance for economies with pronounced de-industrialization and high share of tourism sector, such as Croatia. The analysis in this paper rests on a balance sheet data of Croatian firms during the 1999–2017 period, divided into pre- and post-global financial crisis period. The second novelty of the paper is that assessment of financial constraint is based on the firm-level data. The results suggest an increase in the importance of financial constraints in the period since the crisis, in particular for manufacturing sector. In the case of service sector, financial constraints are significant only for microfirms.