The role of physical and financial constraints in export dynamics
Title: The role of physical and financial constraints in export dynamics
Series/Number: EUI MWP; 2015/17
How do firms' sales interact across markets? Recent empirical work has suggested that foreign and domestic sales are substitutes for firms facing financial and physical capacity constraints. Using a large Spanish firm-level database for the period 1990-2011, we study the interconnections between exports and domestic sales. We provide a new measure to determine if firms face physical constraints based on the capacity utilization of the firm, and document that it is independent of firm fundamentals such as value added and productivity.. A firm facing a binding capacity constraint faces a trade-off between selling on the domestic market or the foreign market, and raises prices in order to take advantage of access to new markets. We establish the prevalence of these anomalous firms, and demonstrate that capacity constrained firms substitute sales across locations.
Subject: Export dynamics; Firm heterogeneity; Capacity constraints; Financial constraints; Market access; F12; F14; L11; L13
With the intention to contribute in a meaningful way to scholarship, authors were since April 2016 working on a revision of the working paper (for the end of 2016). For this reason, the original Working Paper was embargoed until December 2016, and replaced by a new open one on 9 December 2016.
Type of Access: openAccess