Essays on the Role of Financial Constraints In Firm Imports and Growth Open Access
Downloadable ContentDownload PDF
There is a large amount of literature exploring the role of firm liquidity heterogeneity in firm export decisions and growth. However, the impact of liquidity constraints on imports has received far less attention. What is the role of firm access to liquidity in firm import decisions and import patterns? In addition to normal market conditions, how do liquidity constraints associated with the financial crisis affect firm growth in the Great Recession and recovery during 2007-2012? Chapter 2 of this thesis builds a model of liquidity constrained importers and provides two predictions. First, less liquidity constrained firms are more likely to become importers. Second, the relationship between the liquidity dispersion across firms of an industry and aggregate industry imports is nonmonotonic. This nonmonotonicity is identified by considering the cross-industry variation in the import liquidity threshold for the least productive importers. As the import liquidity threshold increases, the overall impact of liquidity dispersion on industry imports is negative and then positive. Chapter 3 explores Chinese import data between 2000-2006 and provides empirical evidence that confirms the model predictions in Chapter 2. I find a negative overall impact of liquidity dispersion on industry imports for over 76% of Chinese industries. Further, I find that the joint impact of liquidity dispersion and tariff on industry imports is positive in all industries. These findings suggest that a more homogeneous liquidity distribution promotes imports in most Chinese industries, especially at times of trade liberalization. Chapter 4 empirically examines the national, sectoral trade and financial features, and firm financial characteristics that might have affected the growth of firm profits in 56 countries in the 2007-2009 Great Recession and the 2009-2012 post-crisis recovery periods. Considered together, the three chapters demonstrate the importance of liquidity constraints in firm imports and growth.