Heterogeneous impacts of finance on firm exports: Evidence from export deregulation in a large developing country

This paper investigates the heterogeneous effects of finance on firm exports through the lens of differential exporting modes. China's WTO accession leads to an export deregulation, which empowers private domestic firms with low registered capital to export directly. This quasinatural experiment encourages firms switching from indirect to direct exporting, and thus provides an ideal setting to explore the heterogeneous effects of finance on exports among switchers and non‐switchers. Applying the difference‐in‐differences (DID) approach to a comprehensive survey data on Chinese manufacturing firms, we find that finance improves exports more for firms switching from indirect to direct exporting, relative to continuous indirect exporters. Our mechanism analysis shows that finance manifests a more pronounced encouraging effect on firm‐level operation efficiency and productivity among switchers. Moreover, we show that the heterogeneous effects of finance on exports among switchers and non‐switchers are more pronounced in the post‐WTO accession period. The time‐varying heterogeneous impacts suggest an economic loss caused by the export distortion before China's WTO accession because it prevents productive yet financially constrained private domestic firms from direct exporting.