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Financial Constraints And Export Participation

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Executive Summary

A firm making export market entry decision faces investment in sunk costs. Financially constrained firms, unable to make this investment, cannot enter the export market. This paper investigates this relation between financial constraints and export participation decision for Indian firms during the period of financial liberalization. Strong correlation between these variables has been found using multiple estimators. The paper further decomposes the growth in India's exports during this period. The decomposition helps analyze if the growth in exports was a result of increased export intensity by the same exporters or increase in the number of exporters.

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