Credit Constraints, Heterogeneous Firms, and International Trade
Kalina Manovay Harvard University November 2006 JOB MARKET PAPER
Abstract
Three fundamental features of international trade ows are a predominance of zeros in the bilateral trade matrix, great variation in the number of products countries export, and substantial turnover in the product mix of exports over time. This paper provides evidence that credit constraints are an important determinant of all three patterns. I develop a model with credit-constrained heterogeneous …rms, countries at di¤erent levels of …nancial development, and sectors of varying …nancial vulnerability, and …nd strong empirical support for the model' predictions. First, I show that s …nancially developed countries are more likely to export bilaterally and ship greater volumes when they become exporters. This e¤ect is more pronounced in sectors with a greater requirement for outside …nance or fewer collateralizable assets. Firm selection into exporting accounts for a third of the e¤ect of credit constraints on export volumes, whereas two thirds are due to the impact on …rm-level exports. Second, in …nancially vulnerable sectors, …nancially developed countries export a wider variety of products and experience less product turnover in their exports over time. Finally, credit constraints lead to a pecking order of trade. While all countries export to large destinations, …nancially advanced countries have more trading partners and also export to smaller import markets, especially in …nancially vulnerable sectors. JEL codes: F10, F14, F36, G20, G28, G32. Keywords: Credit constraints, …nancial development, heterogeneous …rms, margins of export, product variety, product dynamics, trade partners, pecking order of trade.
I thank Philippe Aghion, Pol Antras, Elhanan Helpman, and Marc Melitz for their invaluable guidance. I also thank Andrew Bernard, Doireann Fitzgerald, Dirk Jenter, and Luigi Zingales for insightful conversations, and the participants of the Harvard International Lunch for helpful comments. y Kalina Manova, Department of Economics, Littauer Center, Harvard University, Cambridge, MA 02138, manova@fas.harvard.edu.

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