Financing constraints and exports: Evidence from manufacturing firms in India

Document Type

Article

Publication Title

Empirical Economics

Abstract

This paper examines the relationship between external financing constraints and the intensive margin of exports for manufacturing firms in India. We use a sample of nearly 3200 firms over the period: 2000-2015 and construct a multivariate index proposed by Musso and Schiavo (J Evol Econ 18(2):135-149, 2008) to estimate the degree of external financing constraints. We find that an increase in the degree of external financing constraints faced is associated with lower firm-level exports and this result holds even after accounting for endogeneity issues. We next examine whether business group-affiliated firms are less dependent on external finance to support their overseas sales. We find that financing constraints are a significant binding factor even for firms with access to internal capital markets. Moreover, we find that firm size matters, as a decline in the financial health of small- and medium-sized firms is associated with a significantly larger decline in their export levels. Finally, we find some evidence of industry-level heterogeneity, as financing constraints lead to a more pronounced decline in the exports of firms in industries with greater dependence on external finance.

Publication Date

8-4-2020

Publisher

Springer

Volume

Vol.61

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