This paper explores how to allocate credit supply within an industry to increase aggregate export intensity ( export-to-sales ratio) at industry level. We build a heterogeneous-firm trade model based on Chaney (2005) by introducing credit supply and intra-industry productivity distribution to investigate the effect of credit distribution on export behavior. The key finding is that credit distribution affects export intensity and number of exporters differently, depending on the inherent characteristics of industry: for industries with relatively small foreign market penetration cost, more dispersed credit distribution decreases the industry's export intensity; conversely, for industries with relatively high foreign market penetration cost, the dispersion of credit supply increas...[ Read more ]

This paper explores how to allocate credit supply within an industry to increase aggregate export intensity ( export-to-sales ratio) at industry level. We build a heterogeneous-firm trade model based on Chaney (2005) by introducing credit supply and intra-industry productivity distribution to investigate the effect of credit distribution on export behavior. The key finding is that credit distribution affects export intensity and number of exporters differently, depending on the inherent characteristics of industry: for industries with relatively small foreign market penetration cost, more dispersed credit distribution decreases the industry's export intensity; conversely, for industries with relatively high foreign market penetration cost, the dispersion of credit supply increases export intensity and number of exporters. We test the theoretical prediction with Chinese firm-level data by using both variance and dispersion ratio as indicators for distribution of credits. To categorize accesses of external finance, we employ ownership structure and bank loans ratio. The empirical results are consistent with the theoretical predictions, and we find significant impacts of intra-industry credit distribution on export. Our study provides an important policy implication for credit allocation, as it points out that not only the aggregate credit supply (as indicated by the previous literature), but also its distribution impacts exporting behavior. We can encourage exports by reallocation of credit supply in a more efficient way.