Influence of credit constraint on relation between productivity and export price
(2.Department of Economics, Hong Kong University of Science and Technology)
(3.School of Economics, Shanghai University of Finance and Economics)
【Abstract】In this paper, product quality and credit constraint were introduced to the heterogeneous enterprise trade model to analyze the influence of credit constraint on the relation between export price and productivity. The research shows that productivity has a U-shaped relation with export price: when productivity is lower than a certain threshold, optimal pricing will decrease with increasing productivity; when productivity is higher than the threshold, optimal pricing will increase with increasing productivity. When productivity is higher than the threshold, credit constraint will force enterprises to lower their product prices. In addition, when credit constraint is tighter, productivity threshold that serves as a demarcation in the relation will be higher.
【Keywords】 credit constraint; productivity; export price; endogenous quality; heterogeneous enterprise;
. ① External finance dependence is the proportion of cash flow not from operating activities in capital expenditures.
. ① CES function is often adopted in studies about the analysis on heterogeneity of product quality, such as Kugler and Verhoogen (2012), Johnson (2012), Fan et al. (2015b), Feenstra and Romalis (2014), and Fan and Guo (2015). These studies show that the consumer effect is the function of product quantity and product quality, namely the greater number and the higher quality of products mean a higher consumer effect.
. ②Theoretically, Johnson (2012) assumed that if the productivity is given, enterprises will pay more to produce high-quality products. The models of Kugler and Verhoogen (2012) as well as Baldwin and Harrigan (2011) also mean high-quality products will be accompanied with high marginal production costs. From the perspective of empirical research, Verhoogen (2008), Kugler and Verhoogen (2012), Hallak and Sivadasan (2008), and Iacovone and Javorcik (2008) verified enterprises’ scale has a positive correlation with prices of output and input and enterprises with high productivity pay higher wages to produce high-quality products. Meanwhile, Crozet et al. (2012) found that French premium wine producers export more products at higher prices to more markets. Based on Chinese customs data, Manova and Zhang (2012) found that Chinese enterprises setting higher export prices have higher sales value and volume and their input prices are higher.
. ①When α > 0, marginal production cost increases with higher product quality; α < 1 ensures that higher quality will make higher profits. When α > 1, enterprises’ profits will decrease with increasing product quality due to high production cost.
. ② This paper assumes that the lowest product quality is 1, and any other value cannot change the conclusion. This assumption is consistent with actual conditions of foreign trade. Product export includes quality inspection to eliminate flawed products.
. ③ It should be noted that the model here is static as it only includes one period and the cross-period structure is not considered. To simplify the deduction, only the export pricing behavior is investigated in this paper, which is consistent with the empirical research part.
. ① The critical value of credit channel θthe critical value of credit demand d
. ① If Budget Constraint (2) is not tight, it implies that Lagrange multiplier λ = 0; if q > 1, it implies that Lagrange multiplier η = 0. Thus, Equation (5) can be simplified as:
. ① Manova and Zhang (2012) as well as Kugler and Verhoogen (2012) adopted the method in analyzing the influence of enterprises’ features on export prices.
. ① It is roughly equal to USD 640,000 according to the official period-end exchange rate in 2006 published by People’s Bank of China.
. ② In NBS data, enterprises are distinguished through the code of legal representative and contact information; in customs data, enterprises are distinguished through customs code and contact information. The two types of codes belong to different systems and cannot be mutually converted.
. ③ As enterprises with the same name of legal person in the same region may not be the same enterprises, the legal person’s name and telephone number will be verified in the third step to match them more accurately.
. ① Due to the limited space, the detailed estimation result is not shown. Readers who take interest in this content can connect with the authors.
. ① The first index (All Credits to GDP Ratio) is the ratio of all credits from provincial banks to GDP of the province; the second index (Short-term Loans to GDP Ratio) is the ratio of all short-term loans from provincial banks to GDP of the province; the third index (Long-term Loans to GDP Ratio) is the ratio of all long-term loans from provincial banks to GDP of the province.
. ② China Industry Business Performance Database provides the data on cash inflow and outflow in operating activities during 2004 and 2006. The authors firstly calculate the total cash inflow and outflow in the industry through totaling the data on enterprises in every industry during all years. Then the external finance dependence is represented with (total cash inflow in the industry − total cash outflow in the industry) / total cash outflow in the industry. The value of (total cash inflow in the industry − total cash outflow in the industry) reflects cash flow not from operating activities in capital expenditures, namely the total external capital in the industry.
. ① Customs data provides modes of export: general trade, import processing and contract processing. In the main regression results, only products in general trade are maintained, which account for 64% of total samples. In the robustness test, products of other trade modes are included.
. ① According to the research of Feenstra and Romalis (2014), export price can better reflect export quality, so high-quality products require high-quality inputs.
. ② The matched enterprise-level samples are adopted in both explanatory variables and explained variables in attached Table 2.
. ① Due to the limited space, the regression result is not shown. Readers who take interest in this content can contact with the authors.
. ① The symmetry axis of quadratic function f(x) = ax2 + bx + c is the straight line x = −b / 2a, through which the conclusion can be easily drawn.
. ① Differently, Manova (2013) and Rajan and Zingales (1998) used macro data rather than enterprise data.
. ① Source of price deflator: http://www.econ.kuleuven.be/public/N07057/CHINA/appendix/
. ② Olley and Pakes found that the enterprise optimal investment function is the increasing function of productivity in proper production function assumption.
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