Open AccessCredit Constraint Exports in Countries with Different Degrees of Contract Enforcement
Author(s) -
ZiYi Guo,
Yangxiaoteng Luo
Publication year - 2017
Publication title -
business and economic research
Language(s) - English
Resource type - Journals
ISSN - 2162-4860
DOI - 10.5296/ber.v7i1.10923
Subject(s) - productivity , enforcement , constraint (computer aided design) , business , imperfect , liquidity constraint , market liquidity , monetary economics , destinations , industrial organization , international economics , economics , finance , macroeconomics , tourism , mechanical engineering , linguistics , philosophy , political science , law , engineering
We theoretically consider firms’ export decisions in a heterogeneous firm framework. The paper assumes firms have idiosyncratic productivity levels and are credit-constrained in the export market. Firms in different countries have different degrees of credit constraints. Because of imperfect financial markets, firms might not be able to get the financial support to export even although they are profitable enough from the foreign market. In a country with strong contract enforcement, firms are more likely to export and export to more destinations; while in a country with weak contract enforcement, firms are more likely to be constrained by liquidity and export to fewer destinations. However, for those firms whose productivity is very low or very high, these influences do not exist. Moreover, we consider technology shocks and illustrate that technology shocks will further impede firms’ export decisions.