EXPORTS AND CREDIT CONSTRAINTS UNDER INCOMPLETE INFORMATION:
THEORY AND EVIDENCE FROM CHINA
Robert C. Feenstra
Zhiyuan Li
Miaojie Yu
This paper examines why credit constraints for domestic and exporting firms arise in a setting where
banks do not observe firms' productivities. To maintain incentive-compatibility, banks lend below
the amount needed for first-best production. The longer time needed for export shipments induces
a tighter credit constraint on exporters than on purely domestic firms, even in the exporters' home
market. Greater risk faced by exporters also affects the credit extended by banks. Extra fixed costs
reduce exports on the extensive margin, but can be offset by collateral held by exporting firms. The
empirical application to Chinese firms strongly supports these theoretical results, and we find a sizable
impact of the financial crisis in reducing exports.