The Role of Financial Constraints and Credit Conditions on Firms' Export Behaviour: Evidence From Turkish Manufacturing Industry

Abstract

Global merchandise trade highly depends on the financial sector to provide different financial products. This thesis aims to understand the impact of financial constraints and credit conditions on Turkish manufacturing firms’ exporter status and export intensity. This is the first firm-level investigation that concurrently illustrates the effects of credit conditions, financial constraints, and their interaction on the export performance of Turkish firms. This study uses a comprehensive dataset on the Turkish manufacturing firms between 2006 and 2018, which includes detailed information on firm characteristics and financials, and macroeconomic variables. In order to correct bias from a non-random selection of exporters, the empirical analyses rely on the Heckman two-step procedure. According to the empirical results, except for the solvency ratio, financial constraints generally do not amplify or dampen the impact of changes in credit costs. The results also highlight the importance of credit costs and access to the financial system. An increase in the cost of commercial loans negatively affects export intensity of the firms. Access to bank loans and profitability positively impact the probability of being an exporter. Nevertheless, for exporters, an increase in bank loans is associated with a lower level of export intensity. Furthermore, the solvency and ROE ratios of the firms exhibit an inverse relationship with their export intensity. These results suggest that policies that incentivize and support manufacturing exports by providing better access to finance and lower cost of credit can help improve export performance of firms.