Financing Constraints, Financial Liberalization, and the Export Domestic Value-Added Rate of Manufacturing Firms
ZHANG Panpan, ZHANG Shengli, CHEN Jianguo
School of Economics, Nankai University; School of Economics, Zhejiang University; School of Economics/Collaborative Innovation Center for China Economy, Nankai University
Summary:
Since China's accession to the WTO, its foreign trade has developed rapidly. However, China's trade gains, i.e., its domestic value added rate of exports (DVAR), remain relatively low. Moreover, China's current international trade situation is increasingly difficult. In recent years, China has repeatedly stressed the need to strengthen financial services to benefit the real economy. Therefore, it is of great theoretical significance to study how financing constraints affect China's export DVAR and how they are regulated by financial liberalization, to strengthen financial services and improve the profitability of foreign trade in the current complex international situation. This paper takes Chinese manufacturing export firms as the research object and focuses on the effect of financing constraints on the export DVAR of manufacturing firms. First, it examines the negative impact of financing constraints on enterprises' export DVAR and the mechanism by which reduced technological innovation due to financing constraints negatively impacts enterprises' export DVAR. On this basis, this paper analyzes these heterogeneous negative impacts from four perspectives: trade mode, productivity, ownership, and region. Furthermore, it analyzes the regulatory role of financial liberalization in these negative impacts. Finally, it carries out a robustness test to address potential measurement error and endogeneity problems. In the empirical test, we used fixed effects model. This paper has two theoretical bases. The first is that financing constraints may inhibit export DVAR through reduced technological innovation. The second is that financial liberalization may affect the negative impact of financing constraints on enterprises' export DVAR. Three data sources are used in this study. The first is the China Industry Business Performance Database, from the National Bureau of Statistics of China. The second is the China Customs Statistics Database, from the China General Administration of Customs. The third is the China Patent Database Abstracts, from the China National Intellectual Property Office. The main conclusions are as follows. Chinese manufacturing firms' financing constraints significantly inhibit the promotion of their export DVAR, and technological innovation is the main mechanism. Interest rate liberalization can effectively alleviate this inhibition, while increased shadow banking aggravates it. Therefore, we suggest that the government attempt to alleviate the financing constraints of enterprises by continuing to implement cost reduction measures to ease internal financing constraints and increasing financial liberalization to ease external financing constraints. More financing support should also be given to processing trade enterprises, private enterprises, foreign-owned enterprises, low-productivity enterprises, and enterprises in eastern regions. Lastly, measures should be taken to increase enterprises' technological innovation, such as promoting the financing of technology and creating special funds. This paper makes several contributions to the literature. First, it constructs comprehensive indicators to measure the financing constraints of enterprises and comprehensively measures their export DVAR. In contrast, the indicators of financing constraints selected by previous studies were relatively simple and the measure of export DVAR of enterprises was not comprehensive. Second, the paper more deeply examines the impact of financing constraints on manufacturing firms' export DVAR and explains the low DVAR of Chinese enterprises' exports from the perspective of financing constraints. Third, this paper examines the regulatory role of financial liberalization on interest rate liberalization and the expanding scale of the shadow banking system. Fourth, this paper makes policy suggestions for the promotion of China's export DVAR.
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