External Credit Constraints And The Nexus Between Export And Domestic Sales

China' total export has increased by 824.9 times from 1978 to 2016 under credit constraints facing many firms(World Bank,2013).This fact seems to be at odds with theoretical studies where credit constraints inhibit exports.What's more,high-intensity exporters and pure domestic producers account for the majority of Chinese exporters.Thus,we have a question whether or not Chinese exporters increase export at the expense of decreasing domestic sales in the presence of credit constraints.That is,do external credit constraints incur substitutability between exports and domestic sales for firms?To address this question,this article firstly develops a simple heterogeneous-firm trade model.The model endogenizes the sorting behavior of heterogeneous firms with external credit constraints on export modes,and analyzes how external credit constraints affect the linkage between exports and domestic sales.The theoretical model has three main predictions.First,external credit constraints drive low-efficiency exporters to engage in high-intensity mode with export intensity constraints.But high-efficiency exporters are more prone to conduct low-intensity mode with external credit constraint.If the external credit constraints were alleviated,high-intensity exporters with high productivity would be more inclined to transform and upgrade to be low-intensity exporters.Second,it is external credit constraints that induces the observed substitution between export and domestic sales more for inefficient exporters.And the decrease of external credit constraint can significantly reduce the substitution between export and domestic sales more for inefficient firm.Third,trade liberalization reduces the substitution of export and domestic sales within the inefficient firms,but incur more substitution of export and domestic sales between firms with middle productivity.We also provide a strong empirical evidence consistent with the main predictions of the theoretical model by using the firm-level database from China.Our conclusions are robust to inclusion of additional controls,various instruments and productivity,subsamples.After further distinguishing the type of external credit constraint,we find that the decrease of bank credit constraint can ease the substitution of exports and domestic sales for low-efficiency enterprises while the decrease of trade credit constraint expand the substitution.