Exporting, Capital Investment and Financial Constraints

Many firms cite financial constraints as some of the most important impediments to their investment and growth. Using a unique data set from the Czech Republic this paper investigates the importance of financing constraints in the context of exporters. It finds that exporters are less financially constrained than non-exporters. However, after carefully correcting for possible endogeneity and selection issues, the evidence points to less constrained firms self-selecting into exporting rather than exporting alleviating firms’ financial constraints. The analysis suggests that easing firms’ credit constraints may play an important role in facilitating exporting and that well-developed financial markets that would decrease firms’ cost of external finance may be needed in order to benefit from selling in foreign markets.