Financial Constraints and Exports: Firm‐Level Evidence From Kenya and Tanzania

ABSTRACT In this article, we use unique firm‐level data for Kenya and Tanzania hand‐collected for 2019 and 2020 to examine the impact of firm‐level financial constraints on the extensive and intensive margins of exports. Unlike previous studies in the African context that mostly rely on perceptual data to examine firm‐level financial constraints, the data allow us to construct four measures of firm‐level financial constraints—financial cost ratio, debt ratio, liquidity ratio, and profitability ratio—and assess their effects on the extensive and intensive margins of firm‐level exports using a two‐part fractional response model. We find that financial constraints reduce firms' participation in export markets as well as export‐sales ratios in both Kenya and Tanzania. Particularly, the debt ratio appears to have a higher impact on export sales than other financial constraint measures. Our results contribute not only to the limited existing literature on financial constraints and trade in sub‐Saharan Africa but also highlight the need to address firm‐level financial frictions to encourage firm participation in trade and boost the region's exports.