Credit Constraints, Quality, and Export Prices: Theory and Evidence from China

Examine the effect of credit constraints on export quality and export prices. * Build a heterogeneous-firm trade model with credit constraints and quality choice. * Tighter credit constrains force firms to produce lower quality in quality sorting. * Verify quality adjustment in support of quality sorting using Chinese data. * Find evidence on efficiency sorting with net-quality prices and quality variations. This paper presents theory and evidence from highly disaggregated Chinese data that tighter credit constrains force firms to produce lower quality. The paper modifies Melitz's (2003) model... Mehr ...