Credit Constraints and Decisions in Exports: Theory under Asymmetric Information

Xin Zhang

Key Laboratory of International Commodity Transaction Analysis and Simulation, Liaoning University of International Business and Economics, Dalian, China.

DOI: 10.4236/jmf.2012.23026                

Abstract

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.

Keywords

Credit Constraints; Asymmetric Information; Heterogeneous Productivity

Conflicts of Interest

The authors declare no conflicts of interest.

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