Credit Constraints, Productivity, and Export Prices: Theory and Evidence
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| Title | Credit Constraints, Productivity, and Export Prices: Theory and Evidence
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| Author | Fan Haichao and Peng Fangping |
| Organization | Shanghai University of Finance and Economics; Sun Yat-sen University |
| Email | fhxac@ust.hk；pengfp@mail.sysu.edu.cn |
| Key Words | Credit Constraints; Productivity; Prices; Endogenous quality; Heterogeneous firms |
| Abstract | This paper examines how credit constraints affect the relationship between export prices and firm productivity. The model extends Arkalokis (2010) by introducing endogenous quality of variety, credit constraints and marketing costs to a heterogeneous-firm trade model. It predicts a U-shaped relationship between firm productivity and export prices: the optimal prices set by firms decrease with firm productivity if the productivity is lower than the threshold; the optimal prices set by firms increase with firm productivity if the productivity is higher than the threshold. Credit constraints decrease the prices set by the firms with the productivity higher than the productivity threshold, but do not affect the prices set by the firms with lower productivity. Furthermore, the productivity threshold, which demarcates the switching of the relationship between prices and productivity, increases as more severe credit constraints are faced by firms. The empirical application to Chinese bank loans data, Chinese firm-level data from National Bureau of Statistics of China (NBSC), and Chinese Customs data strongly supports these theoretical predictions, and we find a significant impact of credit constraints on the relationship between export prices and firm productivity. |
| Serial Number | WP530 |
| Time | 2013-10-15 |
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