Firm Exports and Multinational Activity Under Credit Constraints

This paper provides firm-level evidence that credit constraints restrict international trade flows and affect the sectoral pattern of multinational activity. Using detailed customs data from China, we show that foreign affiliates and joint ventures have better export performance than private domestic firms in financially more vulnerable sectors. These results are stronger for destinations with higher trade costs and not driven by variation in firm size or by other sector determinants of FDI. Our findings are consistent with multinational subsidiaries being less liquidity constrained because they can tap additional funding from their parent company and/or access foreign capital markets. More broadly, they suggest that FDI can alleviate the impact of domestic financial market imperfections on aggregate growth, trade and private sector development.