Financial Constraints and Export Margins of Manufacturing Firms: Evidence from Egypt

The main objective of this study is to examine the impact of financial constraints on extensive and intensive export margins. The study contributes to the literature by focusing on firms in Egypt using the World Bank Enterprise Surveys data for 3 years: 2013, 2016 and 2020. The study estimates two main equations. The first is for the extensive margin (probability of firm exporting) using a probit regression and the second is for the intensive margin (value of real exports) using an ordinary least squares regression. The main findings suggest that a financially constrained firm is less likely to become an exporter and tends to export smaller values. These negative effects are transmitted via the effect of credit constraints on fixed investment, product innovation and share of imported inputs, which all translate into a lower productivity level of constrained firms. Moreover, firms operating in labor-intensive and low-technology manufacturing sectors are particularly negatively affected by financial constraints, whereas no heterogeneous effects on the intensive margin are found by firm size. Results are robust to the use of different measures for financial constraints and to corrections for a potential selection bias and endogeneity.