Financial Constraints and Exports ∗

My new findings from firm-level surveys show that both a firm’s probability of exporting and a firm’s exporting volume increase with the firm’s age after controlling productivity as well as that both probability of and quantity of export are higher among financially non-constrained firms, after controlling age and productivity. This paper develops a model with credit-constrained, heterogeneous firms to explore how financial constraints impact firms’ exporting behavior and how these constraints are relaxed as firms mature up. I assume that entrepreneurs finance investment with optimal financial contracts, while firms only have limited commitment to the contract-they may run away with capital. Lenders need to restrain firms’ capital level to prevent strategic default. Firms are defined to be financially constrained if their capital is below the optimal level under perfect enforceability. Examining international firm-level data from Enterprise Surveys by the World Bank, I find strong empirical support for the predictions of the model. Both the probability of exporting and export volume are significantly higher among firms that are not ”financially constrained”; these effects decline with firm age. Empirical analysis also yields another implication: financial constraints have attenuated effects in financially developed countries.