Can export tax rebate alleviate financial constraint to increase firm productivity? Evidence from China

This paper assesses the impact of export tax rebate on firms' Total Factor Productivity using a large panel of manufacturing firms for 2007-2015 in China. It finds that export tax rebate expands export volume and works as an alternative financial tunnel to increase firms' TFP. It further shows export tax rebate can smooth financial constraints through increasing cash flow, substituting working capital and financing fixed assets investment and R&D investment. Moreover, the impact of export tax rebate on TFP increases across state, private and foreign ownerships. Heavy pollution intensive and less capital-intensive industries are strongly affected by the export tax rebate policy. Finally, these results are robust to the choice of GMM, Heckman Two-stage and PSM estimators which can better solve potential endogeneity problems and selection bias issues in this paper.