The role of credit constraints on firms' exporting and importing activities

This article investigates the role of credit constraints on export, import, and two-way trade activities of European manufacturing firms. Using direct financial constraints indicators and accounting for endogeneity issues, we find that credit rationing significantly reduces both the probability of entering foreign markets and the intensive margins of trade. Empirical results also point out that the role of extra entry costs differs according to the location of foreign markets and to the type of imported goods and services. Conditional on trading in the European Union, rationing is not an obstacle to entering additional exporting and importing markets, even though two-way traders behave differently and are negatively affected by financial constraints when they enter non-EU markets.