Credit Risk And Internationalization Of Heterogeneous Firms

Trade Models with Heterogeneous Firms(HFTM) is the frontier of the international trade theory, the assumption of firm heterogeneity is the fundamental difference from the previous theories, and also an important innovation of the theory itself.Based on the micro level analysis, HFTM has the most explanatory power to the economic phenomenon of enterprises in international trade and outward foreign direct investment (OFDI).Therefore, using HFTM to explain the international trade and OFDI among different countries has become a spot in the theory of international trade in the near future.Now, in China, foreign trade plays an indispensable role in domestic and foreign economic growth. International trade become the driving force and the engine of economic growth, also made a very good position in world trade.At the same time, since 2005, OFDI has accelerated the pace in China. By 2012, the flow volume of Chinese OFDI has ranked third in the world. Baced on these economic facts, there are lots of research about export and OFDI decision of Chinese enterprises using HFTM. However, almost of these studies focused the view of productivity, financing constraints as well as the domestic market segmentation that enhance domestic trade cost.Finding a new path, this paper believes that the domestic credit system is not perfect which is the very important reason that causing credit risks different among enterprises, thus this situation will affect the liquidity themselies, and hence this will have a greater impact on export and OFDI decision of Chinese firms.This paper summarizes the research on the choice of internationalization path of firms, as the connection point with the existing theory and research, and also the starting point for the creation.Then, this paper compares the situation of the credit system of different countries, including credit and non credit countries. We points out that the Chinese current credit system which is in the initial construction, is not perfect, these comparative analysis are the system background of the whole article.Then, this paper analyzes the Melitz (2003) model, HMY model(2004) and introduces financing constraints in Melitz model (Chaney,2005). Baced on these theoretical models, we give a general analysis of credit risk under Melitz model, which is the theoretical basis of the whole article.The existing research, the comparative analysis of credit system, and the theoretical analysis are the prerequisite for this paper. Then we give an empirical research on the effect of credit risk, technical level, market development costs and other factors to the export and OFDI decisions making of Chinese firms.First,this paper verified the influence of credit risk and other factors on the export decision and export volume using cross section dataandunbalanced panel data.The empirical results show that:the smallercredit risk of a firm face, the more possibility it exports, and furthermore the export volume is bigger when it has entered the export market; the possibility of export is smaller when a firm’s technical level is higer, and meanwhile the export volume is smaller, this is the "productivity paradox"of Chinese export enterprises according to theories, but after a certain robustness test, we found that there is a certain relationship between the productivity calculationand productivity paradox:when we use total factor productivity (TFP) instead of the approximate total factor productivity (ATFP) and labor productivity (LP), the so-called "productivity paradox" disappeared. However, replacement process of productivity indicatorhas not changed the robustnessof credit risk; the moreof a firm’s marketing investment, called sales cost, the possibility of export is larger, at the same time, export volume is larger too; the possibility of wholly foreign-owned enterprises to export is larger, while the state-owned enterprises export less likely.Baced on these results, we propose that the government should improve the credit system construction, and provide a better credit environment for enterprises to export.Then, this paper gives an empirical study about the effect of the credit risk and other factors on OFDI decision of Chinese firms.The results show that:the more credit risk a firm face, the smaller possibility of OFDI it can; and the larger possibility of OFDI when a firm owns higher level of theonology; the possibility of foreign-funded enterprises’s OFDI is smaller, and the possibility of state-owned enterprises’s OFDI is higher than which are non state owned enterprises. According to these conclusions, the paper proposes that we should perfect the credit system, to provide a good credit environment for OFDI, based on these result, we should encourage more private firms "going out".