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Financing Constraints, Firm Dynamics, Export Decisions, and Aggregate Productivity

Author

Listed:
  • Andrea Caggese

    (Universitat Pompeu Fabra)

  • Vicente Cunat

    (London School of Economics)

Abstract
We present a dynamic model in which firms accumulate wealth to avoid bankruptcy and to overcome financing constraints that affect their fixed operational costs and the costs of becoming an exporter. Financing constraints not only affect firms directly when they are binding, but also indirectly, through precautionary saving and the selection of firms via entry and exit of the domestic and export markets. We calibrate the model and test some of its predictions using a rich dataset of Italian manufacturing firms for the period 1995-2003. Financing constraints reduce the aggregate productivity gains induced by trade liberalization by 25 percent by distorting the incentives of the most productive firms to self-select into exporting. (Copyright: Elsevier)

Suggested Citation

  • Andrea Caggese & Vicente Cunat, 2013. "Financing Constraints, Firm Dynamics, Export Decisions, and Aggregate Productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 177-193, January.
    • Handle: RePEc:red:issued:11-37
    DOI: 10.1010/j.red.2012.10.004
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    More about this item

    Keywords

    Financing constraints; Firm dynamics; Exports; Productivity;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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