Credit constraint and firm’s export mode choice

Abstract

How do firms’ credit constraint affect their export mode choices between direct exporting and indirect exporting through intermediaries? This study explores this issue in a heterogeneous firm model where firms differ not only in productivity but also in credit levels. Our model predicts that more productive and financially less constrained firms tend to choose the more advanced export mode and that for the cutoff firms, there is an overall inverse relation between credit and productivity with diminishing marginal rate of substitution. These theoretical predictions are borne out in a large cross-country firm-level dataset over the period 2002–2012.