Financial development and the share of imported capital goods in developing countries: firm-level evidence

ABSTRACT

Firm-level estimations across a sample of seven developing countries suggest that a higher firm’s leverage – a proxy for credit constraints – reduces the share of imported capital goods in total capital expenditures. This result holds across different models such as a two-limit tobit and a fractional logit model. It is also confirmed after controlling for unobserved firm heterogeneity, state dependence or when using the share of property in total assets as an alternative credit constraint indicator. The results also indicate that the importance of credit constraints is significantly reduced in financially more developed countries.

KEYWORDS:

• International trade
• financial development
• credit constraints
• capital goods
• imports

JEL CLASSIFICATION:

• F10
• F14
• G20

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

¹ The same sample as in Fauceglia (2015) is used and contains firms from the following countries: Brazil, India, Indonesia, Philippines, South Africa, Sri Lanka and Thailand.

² A firm is recorded as foreign if a minimum of 50% is owned by foreigners.

³ The opposite coefficient sign is expected for the ‘Enforcement days’ – interaction, .

⁴ This model is estimated in a random effects tobit framework.

⁵ These robustness checks are available upon request.