Credit Constraints, Technology Choice and Exports: A Firm Level Study for Latin American Countries

In this paper constraints on technology choice and credit access are introduced into the Melitz (2003) model in a dynamic setting in order to explain the factors that limit the benefits to a firm from trade liberalization. Theoretical analysis shows that firms face credit constraints depending on their initial productivity and the cost of the credit. As a result, credit constrained firms may never be able to cross the minimum productivity threshold needed to enter and compete in a foreign market. Empirical analysis using firm level data for five Latin American countries confirms that firms face credit constraints in technology adoption and the extensive margin of trade.