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Financial Constraints and Foreign Market Entries or Exits: Firm-Level Evidence from France

Author

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  • Askenazy, Ph.
  • Caldera, A.
  • Gaulier, G.
  • Irac, D.

Abstract

This paper studies the effect of credit constraints on the expansion and survival of firms in foreign markets. It develops a model in which, lower access to external finance, or reduced internal liquidity, hampers the firm ability to finance the recurrent costs to serve foreign markets and decreases firm survival in foreign markets. Additionally, financial constraints act as a barrier to firm export expansion by decreasing the firm ability to finance the entry costs into new export markets; thus, they push firm to avoid losing destinations. We use a unique longitudinal dataset on French firms that contains information on export destinations of individual firms and allows us to construct various firm-level measures of financial constraints to test these predictions. We obtain two main results. First, credit constraints have a negative effect on the number of newly served destinations. Second, higher probability of exit from the export market is also associated with credit constraints; that is consistent with constraints limiting the financing of recurrent export costs.

Suggested Citation

  • Askenazy, Ph. & Caldera, A. & Gaulier, G. & Irac, D., 2011. "Financial Constraints and Foreign Market Entries or Exits: Firm-Level Evidence from France," Working papers 328, Banque de France.
    • Handle: RePEc:bfr:banfra:328
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    More about this item

    Keywords

    Firm heterogeneity; financial constraints; trade.;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing

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