exports versus fdi revisited does strongfinancestrong matter.pdf

Exports versus FDI revisited: Does finance matter? Claudia M. Buc (University of Tübingen) Iris Kesternic (University of Munic ) Alexander Lipponer (Deutsc e Bundesbank) Monika Sc nitzer (University of Munic ) Discussion Paper Series 1: Economic Studies No 03/2010 Discussion Papers represent t e aut ors’ personal opinions and do not necessarily reflect t e views of t e Deutsc e Bundesbank or its staff. Editorial Board: Klaus Düllmann Frank Heid Heinz Herrmann Karl-Heinz Tödter Deutsche Bundesbank, Wilhelm-Epstein-Straße 14, 60431 Frankfurt am Main, Postfach 10 06 02, 60006 Frankfurt am Main Tel +49 69 9566-0 Telex within Germany 41227, telex from abroad 414431 Please address all orders in writing to: Deutsche Bundesbank, Press and Public Relations Division, at the above address or via fax +49 69 9566-3077 Internet http://www.bundesbank.de Reproduction permitted only if source is stated. ISBN 978-3–86558– 59 8– 1 (Printversion) ISBN 978-3–86558– 599– 8 (Internetversion) Abstract The crisis on international financial markets that started in 2007 has shown the potential links between the financial sector and the real economy. Exports and foreign direct investment (FDI) have declined, presumably not only because of a lack of demand, but also because of restricted access of firms to external finance. In this paper, we explore the impact of access to external finance on firms’ choices to export or to engage in FDI. We simultaneously model a firm’s decision to engage in FDI and in exports, and we assess the importance of financial factors for this choice (the extensive margin) as well as for the volume of activities (the intensive margin). We find that financial frictions matter, in particular for the decision to engage internationally