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Effects Of Financial Market Imperfections On Indian Firms' Exporting Behavior

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Executive Summary

Using data from more than 6,000 manufacturing firms in India for 1996-2008, the authors investigate the impact of financial constraints on the exporting behavior of Indian manufacturing firms while also focusing on the link between exchange rate movement and exports. They find that there is a strong degree of persistency in the exporting behavior of Indian manufacturing firms, reflecting the high fixed costs of entering foreign markets for Indian firms. A firm with a higher amount of net cash flows and smaller debt-to-asset ratios is more likely to become an exporter, indicating that a firm tends to self-finance its exporting without relying too much on external finances.

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