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Financing constraints, firm dynamics, export decisions, and aggregate productivity

Caggese, Andrea and Cuñat, Vicente (2012) Financing constraints, firm dynamics, export decisions, and aggregate productivity. Review of Economic Dynamics, 16 (1). pp. 177-193. ISSN 1094-2025

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Abstract

We present a dynamic model in which firms accumulate wealth to avoid bankruptcy and to overcome financing constraints that affect their fixed operational costs and the costs of becoming an exporter. Financing constraints not only affect firms directly when they are binding, but also indirectly, through precautionary saving and the selection of firms via entry and exit of the domestic and export markets. We calibrate the model and test some of its predictions using a rich dataset of Italian manufacturing firms for the period 1995-2003. Financing constraints reduce the aggregate productivity gains induced by trade liberalization by 25 percent by distorting the incentives of the most productive firms to self-select into exporting.

Item Type: Article
Official URL: http://www.economicdynamics.org/review.htm
Additional Information: © 2012 Elsevier
Library of Congress subject classification: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Journal of Economic Literature Classification System: F - International Economics > F1 - Trade > F14 - Country and Industry Studies of Trade
F - International Economics > F2 - International Factor Movements and International Business > F22 - International Migration
F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms; International Business
G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions
G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
Sets: Departments > Finance
Collections > Economists Online
Research centres and groups > Financial Markets Group (FMG)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 05 Nov 2012 13:41
URL: http://eprints.lse.ac.uk/47287/

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