Financing constraints and exports: Evidence from manufacturing firms in India

This paper examines the relationship between external financing constraints and the intensive margin of exports for manufacturing firms in India. We use a sample of nearly 3200 firms over the period: 2000-2015 and construct a multivariate index proposed by Musso and Schiavo (J Evol Econ 18(2):135-149, 2008) to estimate the degree of external financing constraints. We find that an increase in the degree of external financing constraints faced is associated with lower firm-level exports and this result holds even after accounting for endogeneity issues. We next examine whether business group-affiliated firms are less dependent on external finance to support their overseas sales. We find that financing constraints are a significant binding factor even for firms with access to internal capital markets. Moreover, we find that firm size matters, as a decline in the financial health of small- and medium-sized firms is associated with a significantly larger decline in their export levels. Finally, we find some evidence of industry-level heterogeneity, as financing constraints lead to a more pronounced decline in the exports of firms in industries with greater dependence on external finance.