Does Finance Play a Role in Exporting for Service Firms? Evidence from India

Abstract

INTRODUCTIONT RADE in services has shown a sharp global growth over the last three decades and now spans a wide spectrum from travel, tourism and recreational activities to education, training, financial and professional services. Yet, despite the growing magnitude and importance of trade in commercial services, we know remarkably little about the underlying forces that stimulate service firms' ability to export. With the exception of some recent studies that analyse the characteristics and performance of service exporters (Breinlichy and Criscuolo, 2009;and Vogel and Wagner, 2009 amongst others), the service sector remains underexplored in the international trade literature. 1 We aim to contribute to this emerging field of research by studying the role of finance in exporting for service firms, an issue that has not been previously explored. We study the exporting behaviour of Indian service firms between 1999 and 2007 and evaluate whether long-and short-term borrowing matters for the decision to export and the volume exported. To this end, we employ non-linear dynamic panel data techniques where we control for unobserved heterogeneity and the potential endogeneity in the initial conditions problem.The importance of finance for exporting goods is well understood in the international trade literature. At the macroeconomic level, theoretical and empirical studies reveal that countries with well-developed financial systems tend to export goods produced in industries that use external finance effectively (i.e. Beck, 2002Beck, , 2003. At the firm level, the literature suggests that the main The authors are grateful to two anonymous referees and the editor for helpful comments on an earlier draft. 1 We refer to Francois and Hoekman (2010) for a revision of the literature on services trade.

Credit Constraints and Exports: A Survey of Empirical Studies Using Firm Level Data

“…Buch et al (2009) only from becoming a two-way trader (exporter and importer), but it does inhibit firms which import only or operate only within the national market to become a two-way trader. 4 There are a few notable exceptions, see Stibale (2011) for France, Arndt et al (2012) for Germany, Lancheros and Demirel (2012) for India and Akarim (2013) for Turkey; note that other studies using data for France, Germany and India report results that are in line with the big picture of a negative link between credit constraints and export activities.…”

ICT and Exporting: The Effects of Broadband on the Extensive Margin of Business Service Exports

“… There also exist alternative explanations: Breinlich et al () explore the shift to producing services by manufacturing firms in response to increased trade liberalization. Lancheros and Demirel () study the relationship between access to finance and service exports in India. There also exists evidence that firm characteristics affect the decision to export, see Minondo () and Temouri et al (2013).…”

What Drives India's Surge in Service Exports?

“…() focus on IT and expenditure on R&D for success in services exports, whereas Kletzer and Bardhan (), Beck (), Cattaneo et al. () and Lancheros and Demirel () find the importance of finance development passively affecting services trade. While Kimura and Lee () and Eichengreen and Gupta () provide evidence that goods exports and services exports are complementary, Grünfeld and Moxnes () suggest the important role of FDI, both inwards and outwards in promoting services trade.…”

“…They argue that the private sector, especially through institutions such as industry associations, can play a particularly important role in improving quality standards. Lancheros and Demirel (2012) study the importance of finance for exporting services of Indian service firms between 1999 and 2007. Using non-linear dynamic panel data techniques and controlling for past exporting behaviour and unobserved firm heterogeneity, the study fails to find evidence that access to any particular source of finance influences the decision to export or the amount exported.…”

“…However, many of these studies focus on specific aspects of services exports; for example, Findlay and Warren (2000), Shingal (2010), Khan and Kalirajan (2011), Goswami et al (2012) and van der Marel (2012) emphasise on trade agreements, regulations and trade barriers affecting services trade, particularly services exports, while Francois and Hoekman (2010) and Mishra et al (2011) suggest services sophistication, growth and policy for trade in services. Studies by Leamer and Storper (2001), Dossani (2005), Tharakan et al (2005), Aw et al (2011) focus on IT and expenditure on R&D for success in services exports, whereas Kletzer and Bardhan (1987), Beck (2002), Cattaneo et al (2010) and Lancheros and Demirel (2012) find the importance of finance development passively affecting services trade. While Kimura and Lee (2006) and Eichengreen and Gupta (2013) provide evidence that goods exports and services exports are complementary, Gr€ unfeld and Moxnes (2003) suggest the important role of FDI, both inwards and outwards in promoting services trade.…”