Published online: 13 Jan 2015.
These facts stimulate the increasing The productivity threshold is higher for ﬁrms with less need to understand export-accelerating channels. 2015 Vol. we employ international trade cost shocks to identify the causal impacts of trade credit on ﬁrms’ exportation. and the endogeneity of trade credit. University of North Dakota. In a panel data set of manufacturing ﬁrms in 25 Eastern European and Central Asian countries between 2001 and 2007. international trade costs and exports: cross-country firm-level evidence Xiao Wang Department of Economics. This article trade credit. http://dx. We propose that decreases in export costs tions have impacts on their exportation (Manova. Results are robust after controlling for bank and other ﬁnancing channels. plays an important role in determining ﬁrms’ exportation. Our ﬁndings contribute to the empirical identiﬁcation of ﬁnancial frictions on ﬁrms’ exports and to the role of trade credit on ﬁrms’ performance. nomic growth. Grand Forks. trade credit. difﬁculties. 2010). USA E-mail: xiao.wang@business. 22. Berman and Héricourt.2014. F36. country ﬁnancial development. will have disproportionate impacts on ﬁrms with less 2008. G30 I. ﬁrms with less trade credit increase their exports disproportio- nately more because of the alleviation of their ﬁnancing burdens.1080/13504851.995353 Trade credit. F15. from 2001 to 2007 in the World Bank Enterprise © 2015 Taylor & Francis 993 . F14. We ﬁnd that when trade costs decline. 993–998. North Dakota 58202. 12. ﬁnancial frictions JEL Classiﬁcation: F12. export. channel. No. trade liberalization. which is the ﬁnancing pro.edu Downloaded by [University of Otago] at 19:23 23 July 2015 This article ﬁnds that ﬁrms’ trade credit. productivity is above the zero-export-proﬁt threshold. Therefore. ﬁrms export if their countries improve productivity and speed up eco. the ﬁnancing provided by upstream input suppliers along the supply chain. A trade credit because these ﬁrms have more ﬁnancing number of studies ﬁnd that ﬁrms’ ﬁnancing condi. College of Business and Public Administration.und. Introduction We assume that ﬁrms are heterogeneous in produc- tivity and face export costs and that ﬁrms face ﬁnan- Opening to international markets can help host cial frictions.doi. Applied Economics Letters.org/10. Keywords: trade credit. because these ﬁrms’ ﬁnancing burdens investigates the impacts of a speciﬁc ﬁnancing are alleviated asymmetrically more. We employ a panel data set of manufacturing ﬁrms vided by upstream input suppliers along the supply in 25 Eastern European and Central Asian countries chain.
Fisman and Love (2003) point out that trade article examines the role of trade credit in ﬁnancing credit may ease ﬁrms’ ﬁnancing difﬁculties. Czech. nonmetallic mineral products. transportation costs at the industry level. reduce the productivity threshold for export- cal framework. market liberalization to control for the endogeneity of ﬁrms’ ﬁnancing conditions. First. our results are robust after incorporating the most disaggregated level given the data limita- ﬁrms’ ﬁnancing from banks and other channels tion. electronics. effects are more pronounced for ﬁrms with lower 1 Twenty-ﬁve countries are Albania. Lithuania. This (2008). have higher shares of foreign own- trade liberalizations reduce their burdens in ﬁnancing ership. chemicals. we ﬁnd The second part constructs industry-level export similar impacts on trade volume for exporters. Poland. ad valorem export costs as the sum of tariffs and ble bias caused by ﬁrms’ self-selection of export.2% in casuality. (2006). A series of ﬁnance is above a zero-export-proﬁt threshold. Data tages. Armenia. Kyrgyzstan. ﬁrms’ exportation. Croatia. year triplet. we proxy the employ the Heckman model to correct for the possi. Manova (2008) uses the exogenous equity 2004 and to 12. Georgia. Kazakhstan. Moldova. plastics and rubber. it has trade credit measures at the ﬁrm The data set consists of two parts. countries in the data are similar in includes 1620 ﬁrm-year observations in 11 manufac- economic background but have experienced various turing industries in 25 Eastern European and Central export cost changes. Russia. ﬁrms export if their productivity to the literature of trade credit. machinery and equipment. this article ﬁnds that We propose hypotheses based on two trends of lit- ﬁrms with less trade credit increase their exports erature: (i) only the productive ﬁrms export. garments. Hypotheses and the empirical framework genous changes in export costs. basic metals. Data and Empirical Framework trade cost data from the United Nation Comtrade database. Turkey. this article contributes In the equilibrium. 2007. Latvia. bilateral trade pairs from the United Nation tiﬁcation of the impacts of ﬁnancial frictions on Comtrade database. and after Consolidated Tariff Schedules database. not the tries have decreased from 19. The average trade costs for all coun- tation may only indicate the correlation. and have more trade credit. Azerbaijan. Second. ﬁrms that are able to of trade credit by upstream suppliers (Fisman and ﬁnance their export costs can export. panel. late that declines in export costs will increase export Section II describes the data and constructs the empiri- proﬁts. Bosnia and Herzegovina. The ﬁrst part level. Wang Surveys. we average its export costs across differ- regressing ﬁrms’ ﬁnancial conditions on their expor. Eleven manufacturing industries include food. Estonia. cost-insurance-freight over free-on-board values for This article ﬁrst contributes to the empirical iden. fabricated metal products. On average. controlling for the possible endogeneity of trade Transportation costs are measured as the ratio of the credit. Enterprise Surveys data set has two advan.0% in 2007. (2003) assumes that ﬁrms are heterogeneous in pro- which identiﬁes the causal impacts of ﬁnancial fric- ductivity and pay ﬁxed and variable costs to export. collected by the ﬁrms’ differentiated export behaviour. as in Manova Love. Romania. Tajikistan. Section IV concludes. World Bank Enterprise Surveys. As pointed out by Manova (2008). (ii) In an articles have examined the reasons for the provision imperfect ﬁnancial market. Bulgaria. which is Downloaded by [University of Otago] at 19:23 23 July 2015 Finally. Section III displays benchmark results ing and therefore increase ﬁrms’ exports. ent destinations. we postu- The remainder of the article is organized as follows.1% in 2001 to 14. nately high for ﬁrms with less trade credit. Following the two trends in the literature. combined with industry-level international II. First. 2012). Melitz disproportionately more after trade liberalization. Slovenia. Following Bernard et al. Slovak. tions on exportation. We costs. because larger and older. Ukraine and Uzbekistan. Second. 994 X.. These and robustness checks. Tariffs are extracted from the World Bank and the country’s ﬁnancial development. Second. 2003. Belarus. textiles.1 The World Bank Several ﬁndings stand out. Hungary. Employing the exo. and other manufacturing industries. For every country-industry- ﬁrms’ exports. export costs systematically more. we focus on has surveyed each ﬁrm two (three) times every three ﬁrms’ probability of exportation and ﬁnd that the years in every country and the data set is a balanced impacts of decreased trade costs are disproportio. Cunat. . which allows us to observe Asian countries from 2001 to 2007. Klapper et al. exporters are more productive.
The second stage estimates where pijct is a dummy which equals 1 if ﬁrm i in Equation (2). labour III. γv and δv . which μijct . ﬁrms’ self-selection of exportation respectively. In the ﬁrst stage. dc and dt are industry. and expect tcostjct is the export cost. The control vector Zijct includes employment. these effects are more pronounced for ﬁrms with lower where Ξijct is the inverse Mills ratio that sum- trade credit. We industry j in country c in year t exports. columns 1 because the insufﬁcient time spanning of ﬁrms (2 or and 2 display the results for ﬁrms’ export volume in 3 observations per ﬁrm) does not allow us to include estimating Equation (2). Eðμjν. these effects are E½lnðvijct Þjpijct ¼ 1 ¼ αv þ βv tcostjct more pronounced for ﬁrms with lower trade credit. p ¼ 1Þ ¼ aEðνjν >  βxÞ ¼ aϕðβxÞ=ΦðβxÞ ¼ aΞ. are interested in coefﬁcients βv . which cing from banks and other channels. ﬁrms may also acquire ﬁnan- 2 by estimating a Heckman model in (1979). will affect the estimation of export volume. international trade costs and exports 995 trade credit. We ﬁrm with no trade credit will increase export by expect that βp <0 because lower export costs result in 1. 0 otherwise. EðμjνÞ ¼ aν. One is whether ﬁrms have a quality certiﬁcate. facing one percentage point decrease in trade costs. websites. we exportation because trade liberalizations alleviate estimate (1) by the random-effects panel logit model. we In order to test Hypothesis 1. as in In Table 1. a The coefﬁcients we focus on are βp . measured by a share of intermediate goods ﬁnanced by delayed payments from suppliers. γp and δp . we estimate: re-estimate Equation (1) with two additional variables that affect ﬁxed cost of export and therefore the export pijct ¼ 1½αp þ βp tcostjct þ γp tcreditijct probability only. dj . γv > 0 and δv > 0 as in Equation (1).3 We estimate the Heckman model in two stages. (2008). variables to control for alternative ﬁnancing channels the export volume vijct is observed only when ﬁrms – the ﬁrst is a dummy of whether ﬁrms consider 2 Results are robust if using total factor productivity but the number of observations is reduced by 60% because of missing capital. Following Berman and Héricourt (2010). Then. Take column 2 for instance. is correlated with νijct in Equation (1): predict ﬁrms’ export probability and volume. the Heckman model is: Hypothesis 1: Declines in international trade costs increase ﬁrms’ export probability. and both affect ﬁxed export costs from information barriers. may help to ﬁnance export costs and δp > 0 because Robustness check 1: financing from banks and the impacts of trade costs are disproportional large other channels and financial development for ﬁrms with less trade credit. another is whether ﬁrms use emails and Downloaded by [University of Otago] at 19:23 23 July 2015 þ δp tcostjct  tcreditijct þ λp Zijct (1) þ dj þ dc þ dt þ νijct > 0. We add three corrects for ﬁrms’ self-selection bias. Following Melitz et al. þ γv tcreditijct þ δv tcostjct  tcreditijct (2) Hypothesis 2: Declines in international trade costs þ λv Zijct þ dj þ dc þ dt þ aΞijct . export: pijct ¼ 1. We propose Hypotheses 1 and 2. Results conﬁrm that ﬁrms with less and year dummies respectively. viated more.57% more than a ﬁrm with the trade credit ratio more exporting ﬁrms. ﬁrms’ ﬁxed effects. Trade credit. Speciﬁcally. 3 Assume ν in Equation (1) follows a distribution ΦðνÞ. their ﬁnancing difﬁculties more. marizes the self-selection effect. SEs are clustered at the ﬁrm level. If the error term for trade volume. because their ﬁnancing burdens are alle. we test Hypothesis Besides trade credit. . tcreditijct is the trade credit βv < 0. country Equation (1). increase export volume for existing exporters. ﬁrm age.2 and a foreign ownership dummy which equals 1 if a ﬁrm has at Benchmark results least 10% of foreign ownership and 0 otherwise. columns 1 and 2 display the estimation of Javorcik (2004). Table 2. and νijct is the error trade credit engage disproportionably more into term. γp > 0 because trade credit of 50%. Results productivity relative to industry mean.
a country’s ﬁnancial development may bank ﬁnancing and the aggregate ﬁnancial also impact ﬁrms’ export.001) FDI Firm 0.385*** 0.135 0. Columns 3 and 4 in third is a dummy of whether ﬁrms have ﬁnancing Tables 1 and 2. Wang Table 1.368) (0.021) Ln(Employment) 0.493) Downloaded by [University of Otago] at 19:23 23 July 2015 Fin.31 124.346*** −2.015) Age 0.341** 3. Credit + 9.015) (0.097) (0.475) (1.348*** 1.393*** 0. development as the ratio of private credit over following Eck et al.798*** 0. ** and * denote signiﬁcances at 1%.434) (0.25 130.099) (0.128*** 0.191) T. country and year dummies are included.097) (0.348*** 2.552) Trade Credit + 1.451*** −4. respectively.019*** 0. conﬁrm that the bench- from their buyers through cash in advance.253) Fin.024*** 1.047) (0.101) (0.463) (2.853*** 1.778*** 0.336) (0. 996 X.3 128.319) (0.403) (0.121 0.134*** (0.287) (0. Obstacle −0. . Cost*T.001 (0. Development 2. from Buyers 0.366*** 0.915** 2.007) (0.095) (0.488) (0.605*** (4.044 Observations 1612 1570 1528 1497 927 906 Notes: The instruments in (5) and (6) are ﬁrms’ sale 3 years before and their liquidity. The impacts of international trade costs and trade credit on export probability Dependent variable: export probability Benchmark Other ﬁnance Endogeneity Signs (1) (2) (3) (4) (5) (6) Trade Cost – −9.292) Productivity 0.012* 0.198) (1.39 Cragg-Donald F 26.469) Fin.504 25.093) (0.213*** (2. respectively. the dummy of ﬁnancing from buyers is for ﬁrms’ general sales.393*** 0. 0.048) Pseudo R2 0.798*** (0.387** 4.470) (1.805) (2.189 (0.007) (0.831*** 0.104) (0.007) (0. ***. (2012).148 Chi-squared 129.001) (0.220) Bank Loan/Sales 3.097) (0.104*** (0. 4 Due to data limitation.212*** (1.121** (1.226 −0.767*** 0.092* 4.023 0.350) (0. 5% and 10%. access to ﬁnance as a moderate to major obstacle.033 (0. (2010) and add its interaction loans from banks divided by total sales and the with trade credit in regressions.015** 0.4 mark results still hold after controlling for ﬁrms’ Similarly. Credit −4.019*** 0.173 (0.466) (1. Dev.462*** −8.936*** 1.821*** 0.135 0.141*** 1.*T.214) (0.298*** 0. We measure ﬁnancial development.496) Fin. the second is ﬁrms’ GDP from Beck et al.101*** 0.345) (0.386 (1. Industry.030 0.139 0.001 0.896 Sargan Stat.288) (0.007) (0.022) (0.
097) (0. country and year dummies are included.385*** 0.419 0.420 0.294) Downloaded by [University of Otago] at 19:23 23 July 2015 Fin. ** and * denote signiﬁcances at 1%.470) (0.798*** 0.220) (0.466) (1.915** 4. Speciﬁcally.110*** 2. The instruments in (5) and (6) are ﬁrms’ sale 3 years before and their liquidity.711*** 0.399 0.072) Fin.208** −0.106*** (1.149*** −5. Credit −4.009 0.207) (0.700*** 0.087) (0.007) (0.092) (0.088) (0.659** 3. which conditions.018) FDI Firm −0.022 (0.365* 56.261) Age −0.358*** (1.336 2.775*** 2. 0. The impacts of international trade costs and trade credit on export volume Dependent variable: export volume Benchmark Other ﬁnance Endogeneity Signs (1) (2) (3) (4) (5) (6) Trade Cost – −5. Credit + 3. Dev.214) (0.489) (0.342) (0. Obstacle −0. 5% and 10%. We employ is not correlated with ﬁrms’ current shocks that may .445*** (1.739*** 1.341** 2.006) (0.073) (0. Development 2.511) (0.511*** (0.226 −0.016 (0.836*** 0.221) Productivity 0.943*** 1. The ﬁrst relationship with input suppliers and their ﬁnancial instrument is ﬁrms’ sales prior to three years. the ﬁrst-stage exclusive variables are dummies of whether ﬁrms have quality certiﬁcate and online communication tools. Robustness check 2: the endogeneity of trade the instrument variable method to correct for the credit possible endogeneity.187) Bank Loan/Sales 3.305) (1.101) (0.497*** 0. from Buyers −0. ***.105** −20.676 Sargan Stat.289 −0.924* 23.686*** (0.024) (0.383) (0.777) Fin.118*** (0.150) T.412** 2.094) (0.047 Observations 959 660 766 660 707 660 Notes: In (1) to (4) Heckman models.387) (5. we choose two Firms’ trade credit may not be fully determined by instruments that are correlated with ﬁrms’ trade input suppliers but may also be affected by their credit but not with their export decisions.267*** (0.312) (0. Cost*T.007) (0.133) (0.873) R2 0.451*** −0.008 0.105) (0.571) (4.004 −0.297 1.007) (0.686 46.515** 2.350) (0.434) (0.947*** −1.475) (2.794*** −0.860*** 0. Industry. (2012).923) (16.516) Fin. international trade costs and exports 997 Table 2. respectively.154 2. Trade credit.006 0.030) Trade Credit + 1.442 (0.589*** (0.819) (1.019*** −0.447 0.271) (0.278) (0.419 (1.395) Ln(Employment) 0.851) Inverse Mills ratio −1.332) (0. SEs are clustered at the ﬁrm level.141*** −0.941*** (0.*T.104 0.348*** 0.413 0. as in Klapper et al.517) (0.385 Cragg-Donald F 27.
K. and Schott. The Cragg-Donald F statistics pass the weak Economics. (2012) How exports disproportionately more for ﬁrms with less trade credits foster international trade. Conclusion and insurance providers.2006. Y. and Love. 123.1111/ porating ﬁrms’ ﬁnancing from banks and other chan. and Levine. 153–61.2307/ after correcting for the possible endogeneity of 1912352 trade credit. 605–27. 71. Our results sug. Tan and seminar participants. Journal of error term. P. Chih-Ming Melitz. All errors are mine. L. 77–92. doi:10. can provide ﬁrms broader and cheaper channels of doi:10. J. and the Sargan statistics indicate that 2009. M. Our results are robust after incor. A.1093/wber/lhp016 more trade credit.2008. (2007) Trade credit: suppliers as debt collectors IV.. The second instru. American Economic Review. (1979) Sample selection bias as a speciﬁca- tion error. V.05.. (2004) Does foreign direct investment in export costs.00527 nels and the country’s ﬁnancial development. which implies that trade credit is an Fisman. Review of Financial Studies. The Journal of Finance. 58.. Journal of International Economics. S. (2006) the excluded instruments are uncorrelated with the Trade costs.1016/j. 491–527.1093/rfs/hhr122 ﬁnancing in order to foster export growth. ﬁrms and productivity.001 Cunat. doi:10. J. Dan Lu. and industry growth.00467 Melitz. trade credit. E. Even though we focus on the decrease Javorcik. 20. 93. Econometrica. I. doi:10. R. 917–37.008 Special thanks to Wenbiao Cai. Jensen.2.1093/rfs/hhl015 This article ﬁnds that declines in trade costs induce Eck. Review of Financial Studies. R. our results also imply that ﬁrms with increase the productivity of domestic ﬁrms? In more trade credit can perform better with higher search of spillovers through backward linkages. nels to cushion sudden cost shocks. Engemann.123. Manova.441 . doi:10. M. jmoneco. and Schnitzer. B. Journal of Development credit. doi:10.006 Bernard. Columns 5 and 6 in Tables 1 and 2 Berman. ﬁnancial important determinant of ﬁrms’ exports through the intermediary development. K. T. 1695–725. (2003) Trade credit. equity market lib- eralizations and international trade. Quarterly Journal of Economics. Beck. B. M. 47. because they have more ﬁnancing chan. trade costs. instrument test.1257/0002828041464605 Klapper. Laeven.03. (2003) The impact of trade on intra-industry reallocations and aggregate industry productivity. Econometrica. 33–47. and Rubinstein. (2008) Disclosure statement Estimating trade ﬂows: trading partners and trading There is no ﬁnancial interest or beneﬁt that arises volumes. doi:10. 94. 998 X. 206–17. (2010) Financial factors and show that benchmark results are qualitatively the the margins of trade: evidence from cross-country same after controlling for the endogeneity of trade ﬁrm-level data. (2010) ment is ﬁrms’ share of internal funds in ﬁnancing Financial institutions and markets across countries investment. N. 441–87. Cunat and over time: the updated ﬁnancial development and structure database. M. 24. ﬁnancing channel.11. Wang affect exportation. and Rajan. Helpman. L. A. doi:10. Centre for Downloaded by [University of Otago] at 19:23 23 July 2015 Economic Policy Research Discussion Papers 8942. R. 838–67.. The World Bank Economic (2007) ﬁnds that ﬁrms with lower liquidity obtain Review. 353–74. B. Acknowledgements jinteco. Demirguc-Kunt.1016/j. doi:10. (2008) Credit constraints. and Héricourt. (2012) Trade credit gest that policy-makers may focus on policies that contracts. Monetary Economics.jdeveco. doi:10.1162/qjec.2008.1016/j. but correlated ﬁrms’ need for References trade credit as in Cunat (2007). which measures their liquidity. 1540-6261. from the direct applications of this research. and Heckman.. 25. J. 53. 76. K. doi:10.1111/1468- 0262.