Export quality differentiation under credit constraints

Abstract

Abstract This paper studies the effect of credit constraints on the choice by small and medium‐sized enterprises to export goods of higher quality relative to their domestically sold output (quality differentiation). The empirical analysis employs detailed firm‐level data on product characteristics and credit scores. Credit constraints are found to be negatively associated with export quality differentiation. Firms reporting a deterioration of the credit score by a standard deviation are 36% less likely to pursue quality differentiation. The negative relation between credit constraints and quality differentiation is stronger for firms exporting to distant markets.