World Development Vol. 79, pp.

152163, 2016
0305-750X/ 2015 Elsevier Ltd. All rights reserved.
www.elsevier.com/locate/worlddev

http://dx.doi.org/10.1016/j.worlddev.2015.11.012

An Empirical Assessment of the ExportFinancial

Constraint Relationship: How Dierent are Small
and Medium Enterprises?
YOTHIN JINJARAK a and GANESHAN WIGNARAJA b,*
a
Victoria University of Wellington, New Zealand
b
Asian Development Bank, Mandaluyong City, Philippines
Summary. We analyze the nancial constraintexport relationship in a framework that is consistent with stylized features of data.
The analysis accounts for whether rms need loans or have sucient capital, and studies the use of bank loans (quantity of nance) and
availability of overdraft facilities (exibility of nance). We develop a two-stage estimation procedure that uses an equation of bank
nancing in the rst stage and an export equation in the second. We nd that export participation (extensive margin) and the share
of exports in total sales (intensive margin) increase with the availability of overdraft facilities, particularly so for SMEs with loan needs.
The percentage of foreign ownership, ISO certication, and operation in manufacturing sector are also signicant and positively
associated with a rms export participation and rms share of exports in total sales. The main results are robust to a battery of econometric specications and statistical tests applied on the rm-level data from our sample countries. The nding of a large economic
signicance of the overdraft facility variable is consistent with a growing concern from SMEs that the regulatory response to the Global
Financial Crisis has forced banks to tighten risk management, thereby raising the rejection rates of overdraft and loan applications from
SMEs. For SMEs in developing countries and emerging markets, the improvement of alternative nancing forms and supportive
government interventions has become ever more challenging.
2015 Elsevier Ltd. All rights reserved.
Key words credit access, SME, exporting rms, nancial structure, Asia, Thailand

1. INTRODUCTION

countries and emerging-market economies, where the capital

markets are imperfect and subject to the problem of adverse
selection (Stiglitz & Weiss, 1981). The credit gap (unmet loan
needs) for formal rms is estimated at US$ 1.51.8 trillion
worldwide; adding informal rms increase the credit gap to
in excess of US$ 2.6 trillion. Approximately 17-million rms,
or 60% of SMEs have excess demand for loanable funds
(Stein, Ardic, & Hommes, 2013). The odds are stacked against
the SMEs internationally.
A strand of the literature has collected empirical ndings on
the exportnancial constraint relationship that is critical for
the study of SMEs. 2 These include (i) importance of nancial
deepening, 3 partial credit guarantees, structure of the nancial
sector, institution building, and regulatory changes that can
help alleviate the SMEs nancial constraints (Beck, 2013);
(ii) evidence that less nancially constrained rms self-select
into exporting, but there is no reverse causality from exporting
to lessening the nancial constraints (Wagner, 2014); and (iii)
growing concern that the global regulatory response to
nancial crises (i.e., the Basel Capital Accord) requires banks

This study examines the exportnancial constraint relationship, focusing on how small and medium enterprises
(SMEs) dier from other rms. 1 To analyze the relationship,
we consider both the export participation (extensive margin)
and the share of exports in total sales (intensive margin).
Accounting for whether rms reveal that they need loans or
have sucient capital, we evaluate the association between
exports and both the use of bank loans (quantity of nance)
and the availability of overdraft facilities (exibility of
nance). The objective is to understand better the role of
nance on international trade of small rms in developing
and emerging-market economies.
Studying the exportnancial constraint relationship has
both policy and intellectual merits. The Global Financial Crisis inicted a sudden drought of international liquidity, a
sharp drop in international trade, and widespread recession
and unemployment. The severity of the crisis has generated
interest internationally on supportive policies and government
interventions that can help recover rm performance and
jump-start the economy. As a growth strategy, a country
can export its way out of the crisis and recession, but this
course of action requires domestic rms to be highly productive and well equipped with the necessary operational support
to enter and survive international competition. Overcoming
nancial constraints, having sucient capital, managing cash
ow eciently, and readily accessing working capital are
important pre-requisites for rms to be competitive in the global markets. That is the focus of this paper.
Access to credit is challenging for rms that really need it,
most of which are small rms. Credit rationing is known to
be a barrier to a rms growth, especially in developing

* The authors would like to thank the editor and three anonymous
reviewers for constructive comments on this paper. Helpful suggestions
were also provided by Naoyuki Yoshino, Chayodom Subhasri, Amornrat
Kritsophon, Wako Watanabe as well as the participants of several
conferences. These include: the 2014 ADBI-IMF-JFSA International
Conference on Financial System Stability, Regulation, and Financial
Inclusion (Tokyo); the 14th OECD-ADBI Tokyo Roundtable on Capital
Market Reform in Asia (Tokyo); and the 2014 Asia Pacic Economic
Association (Bangkok). Paulo Mutuc and Menaka Arudchelvan provided
able research assistance for earlier versions of this paper. Final revision
accepted: November 23, 2015.
152

AN EMPIRICAL ASSESSMENT OF THE EXPORTFINANCIAL CONSTRAINT RELATIONSHIP

to tighten risk management and could constrain bank lending

further, thereby weakening SMEs exposure to deteriorating
demand conditions and nancial constraints (ADB-OECD,
2014). 4
To measure nancial constraints, previous studies employ
various nancial ratios, including debt to sales, short-term
debt to current assets, liquid assets to total assets, cash ows
to total assets, bank loans to total assets, credit rating, and
self-assessment nancial health. While these measures capture
balance sheet conditions of rms, they are susceptible to an
endogeneity problem in studying the exportnancial constraint relationship. In particular, rm productivity can inuence not only the extensive and intensive margins of exports,
but also these rms nancial variables used as proxies for
nancial constraints.
The endogeneity issue is more serious in the study of SMEs.
Small or large, rms need to perform beyond the aggregate
productivity cuto to participate and prot in export markets.
Thus only a fraction of highly productive rms are able to
export, while the rest, facing high entry costs to export and foreign competition, can only serve the domestic markets, or exit
the industry for the least productive ones (Melitz, 2003). 5 In
the context of the exportnancial constraint relationship
focusing on SMEs, this is consistent with a mass of zero for
SME exports (as well as a mass of zero for some nancing
forms used by SMEs), which are stylized features observed in
the data. The degree to which SME nance and SME exports
can be jointly inuenced by rm productivity is an empirical
question. Intriguingly, Zia (2008) provides some evidence that
the removal of subsidized credit (credit supply shock) to the
export sector in Pakistan causes a signicant drop in the
exports of small non-listed rms (and not for large publiclylisted rms), and that these nancial-constraint eects cannot
be explained by productivity dierences across rms.
Against the backdrop of previous studies in the literature, the
overdraft facility, a bank nancing form vital to a rms cash
ows and working capital, has yet to receive well-deserved
attention. The availability of an overdraft facility allows a rm
to meet its working capital needs (as well as business expansion
and investment in xed assets in the short-term) more readily
and exibly than term loans, as the rms business payments
can be made in the form of a current account. That is, the overdraft facility provides a degree of nancial exibility to rms.
To be qualied for an overdraft facility, however, rms need
good credit records and business-client history with banks.
Consequently, the rejection rate as a percentage of applications
submitted tends to be higher for the overdraft facility than for
the term loans. Banks may, at their discretion, prefer overdrafts to term loans since banks have the right to call in an
overdraft on demand, vary interest rates, and amend lending
conditions subject to the capital market environment.
Our empirical contribution is to provide an empirical horse
race between the quantity of nance and the exibility of
nance in the determination of the exportnancial constraint
relationship. The quantity of nance, measured in our analysis
as the proportion of bank loans in total nancing of working
capital, 6 captures a rms de facto reliance on external nance,
in line with the nancial ratios previously studied in the literature. We propose the availability of an overdraft facility 7 to
capture the exibility of nance available to rms when they
attempt to secure the needed loanable funds externally. A priori, the quantity of nance and exibility of nance should be
indicative proxies for nancial constraints, though both are
likely inuenced by rm characteristics, as well as demandside and supply-side factors in credit markets. Furthermore,
a exible instrument for nancing is particularly important

153

for exports as rms face greater competition in world markets.

In addition, this exibility of nance is particularly important
for emerging economies as uncertainty tends to be more prevalent (at national, industry, and rm levels), which renders
exibility in nancing more important for exporters.
To disentangle possible confounding factors in our proxies
of nancial constraints, we utilize the information about a
rms loan needs as a demand-side shifter, together with controls on rm characteristics, in order to trace the supply conditions of loanable funds (i.e., a supply constraint), thereby
attempting to address the endogeneity issue, subject to available information, in the pattern of exports and nancial constraints of SMEs discussed earlier. Accounting for revealed
nancing needs is crucial as the observed use of bank loans
and the above-mentioned nancial ratios in previous studies
may not necessarily be accurate indicators of excess demand
for nance since some rms might be discouraged from even ling any loan applications despite their loan needs. We develop
a two-stage estimation procedure that uses an equation of bank
nancing (both quantity of nance and exibility of nance) as
a function of loan needs and rm characteristics in the rst
stage, and an export equation in the second stage. We then subject our coecient estimates to a battery of econometric specications to support our main empirical ndings.
The rest of this paper is organized as follows. Section 2 provides a descriptive analysis, covering denitions of SMEs, population and sample of rms, and summary statistics for
variables used in the study. Section 3 outlines econometric specications, reports regression results, and economic signicance
of coecient estimates. Section 4 discusses policy implications
and concludes.
2. DESCRIPTIVE ANALYSIS
Our sample countries include Chile, Israel, Korea, Mexico,
Thailand, and Turkey. Subject to data availability, these countries were chosen to represent dierent geographical regions
and allow us to focus on upper-middle and high-income
emerging economies, where capital market imperfection, credit
rationing, and nancial constraints most likely inuence a
rms export behavior. 8
To classify rms into SMEs and non-SMEs, we follow the
ocial denitions of SME using the number of full-time
employees. For countries in our sample, Israel denes an
establishment with fewer than 100 employees as an SME,
while Thailands denition is 200 employees; Chile, Mexico,
and Turkey dene as SMEs an establishment with fewer than
250 employees. The largest size denition is that of Korea,
where an SME has fewer than 300 employees. Table 1 provides the ocial denitions of SMEs, together with alternative
denitions (e.g., annual sales, turnover, and xed capital). We
use the number of employees as the criteria in this paper as it is
more parsimonious across countries than other denitions of
SMEs. However, we note that banks more often than not
use their own internal denition, which can also be time varying, i.e., a weighted combination of both number of employees
and annual sales, in the management of loan portfolios.
According to the ocial denitions, SMEs account for more
than 95% in the census of rm population in our sample countries. The population of SMEs ranges from 0.5-million rms in
Israel, 0.8-million rms in Chile, 2.3-million rms in Turkey,
2.9-million rms in Thailand, 4.7-million rms in Mexico, to
5.1-million rms in Korea.
Our sample of rm-level observations is drawn from the
Enterprise Surveys (accessed March 2015). 9 We note that the
data have no panel structure in the rm-level information

154

WORLD DEVELOPMENT
Table 1. Denition of small and medium enterprises (SMEs), rm population, and enterprise surveys data

Country

Number of
employees

Alternative denition of SMEs

National population of Enterprise surveys Enterprise surveys

SMEs (% total)
sample of SMEs
year
(% total)

Chile
Israel
Korea
Mexico
Thailand
Turkey

250
100
300
250
200
250

Annual sales < 100,000 uf (232,073.71 chilean peso/1uf)

Annual turnover <100 mil. Israeli new shekel
Capital < 8 bil. Korean won
Revenue < 20 mil. Us dollar
Fixed capital < 200 mil. Thai baht
Annual turnover < 40 mil. Turkish lira

812,193 (98%)
501,676 (97%)
5,143,696 (99%)
4,671,883 (99%)
2,913,617 (99%)
2,291,904 (99%)

86.1%
82.8%
92.1%
86.5%
70.6%
91.5%

2010
2013
2005
2010
2006
2013

The denition of SMEs by number of employees and alternative criteria, and the national population of SMEs are drawn from Financing SMEs and
Entrepreneurs 2014 report. The Enterprise Surveys sample of SMEs and the corresponding survey year are based on the Surveys 2015 database.

and the year of survey diers from country to country. Our

coverage of rm-level observations includes 1,033 rms from
Chile (86.1% SMEs; year 2010), 483 rms from Israel (82.8%
SMEs; year 2013), 598 rms from Korea (92.1% SMEs; year
2005), 1,480 rms from Mexico (86.5% SMEs; year 2010),
1,043 rms from Thailand (70.6% SMEs; year 2006), and
1,344 rms from Turkey (91.5% SMEs; year 2013). Accounting
for the time duration to conduct each country survey, observations from Korea and Thailand fall into the period before the
Global Financial Crisis, observations from Chile and Mexico
fall into the period during the Crisis, and observations from
Israel and Turkey fall into the period after the Crisis.
The economic importance of SMEs in our sample countries
is supported by the overall SME contribution in employment,
output, and exports. In terms of employment contribution,
SMEs employ 63% of the business sector labor force in Chile
in 2011, 43% of business sector employment in Israel in 2012,
50.3% of the labor force in Korea in 2011, 40% of employment
in Mexico in 2008, and 78% of the labor force (including agriculture) in Thailand in 2010 (Financing SMEs and Entrepreneurs, 2014).
Furthermore, in 2000 SMEs in Chile contributed 20.8% to
national output, and SME exports for 1.1% of national output
(Chiles total exports/GDP is 29.3%), according to the statistics from the Comite de Fomento de la MyPE. In 2011 SMEs
in Korea contributed 47.3% to national output and SME
exports for 10.2% of national output (Koreas total exports/
GDP is 55.7%), according to the statistics from the Small
and Medium Business Administration. 10
To illustrate further, Figure 1 provides a decomposition of
the contribution of SMEs to national output and exports for
Thailand in 2007. The data on output and exports of SMEs
are from the Oce of Small and Medium Enterprises Promotion, and the data on national exports to output (exports/
GDP) are from the World Banks World Development Indicators. SME output accounts for 38.7% of national output.
While the share of SME exports in SME output is 57.1%,
which is below the share of national exports in national output
of 73.4%, SME exports still account for 22.1% of the national
output and make a signicant contribution to Thailands
external sector.
Using rm-level information from the World Banks Enterprise Surveys, we calculate for each sample country the average export participation (% of rms; the extensive margin of
trade), the average loan needs (% of rms responding that they
did not apply for any loan because there is sucient capital),
the average size of bank loans (% of total nance), and the
average availability of overdraft facilities (% of rms).
Also using rm-level information from the Enterprise Surveys, Figure 2 shows the export participation of rms in the
sample, which ranges from 20% for Korea, 30% for Chile,
Israel, and Mexico, 52% for Thailand, and 55% for Turkey.

30.1%
73.4%
SME Exports = SME Exports * National Exports
SME Output National Exports National Output
57.1%
SME Output
National Output
38.7%
National
Output
(GDP)

SME Exports
22.1%

SME Output
38.7%

National
Exports
73.4%

Figure 1. SME contribution in output and exports Thailand. This gure

provides a decomposition of SMEs contribution to output and exports for the
case of Thailand. The data on output and exports of SMEs are from the
Oce of Small and Medium Enterprises Promotion, 2007. The data on
national exports to output is from the World Development Indicators.

Based on the observed export participation across sample

countries, we can see that the extensive margin of exports
ranges from a fth to one half of all the rms in the countries
surveyed. There is a probability mass at zero on the decision to
export of rms in the data.
The average rms in sample countries also dier in terms of
their revealed nancing needs, the quantity of nance used,
and the exibility of nance available as follows. The proportion of rms responding that they do not need a loan is 26.2%
for Thailand, 29.6% for Chile, 42.0% for Korea, 44.3% for
Mexico, 49.3% for Turkey, and 53.0% for Israel. 11 The average proportion of rms working capital nanced by borrowing
from banks (the quantity of nance) is 9.3% for Mexico,
13.8% for Korea, 16.7% for Turkey, 17.1% for Israel, 19.1%
for Chile, and 40.9% for Thailand. The average proportion
of rms with overdraft facilities available (the exibility of
nance) is 27.4% for Mexico, 65.8% for Turkey, 71.9% for
Thailand, 85.5% for Chile, and 90.7% for Israel.
While Figure 2 is indicative, we have yet to observe from it any
distinct correlation between the pattern of nancing an average
rm and the countrys nancial structure. To measure the countrys nancial structure, we use the ratio of stock market capitalization to deposit money in banks, an oft-cited proxy for
market-based (vs. bank-based) nancial structure. 12 The

AN EMPIRICAL ASSESSMENT OF THE EXPORTFINANCIAL CONSTRAINT RELATIONSHIP

155

100.0
90.7
90.0

85.5

80.0
71.9
70.0

65.8

60.0

55.0

53.0

51.7

50.0

49.3

44.3

42.0

40.9

40.0
30.0
20.0

30.9 29.6

29.6
19.1

29.1

27.4

26.2

20.4
17.1

16.7

13.8
9.3

10.0
0.0
Chile

Israel

Korea

Mexico

Thailand

Export Participation (% of firms)

No-Need-for-a-Loan Respondent (% of firms)

Bank Loans (% total finance)

Overdraft Facilities (% of firms)

Turkey

Figure 2. Export participation and nancial constraints. This gure provides a summary illustration of export participation (% exporting rms in total rms)
and nancial constraints [based on bank loans (% total nance), loan needs (% of rms), and the availability of an overdraft facility (% of rms)] for all
rms in the sample drawn from the Enterprise Surveys, covering Chile (17.27%), Israel (8.08%), Korea (10.00%), Mexico (24.75%), Thailand (17.44%),
and Turkey (22.47%).

market-based nancial structure measure is 0.52 for Turkey,

0.54 for Thailand, 0.72 for Korea, 0.85 for Israel, 1.06 for Mexico, and 1.93 for Chile. The nancial structure measure suggests
no strong association with the use of bank loans and the availability of overdraft facilities across the sample countries.
For the formal estimation, we include all the rms from our
sample countries: Chile (17.27%), Israel (8.08%), Korea
(10.00%), Mexico (24.75%), Thailand (17.44%), and Turkey
(22.47%). Table 2 provides the summary statistics of variables
included in the econometric analysis. The share of exports in
total sales (%), which is our variable for the intensive margin
of exports, has a mean of 17.2%, while the export participation
(a 0/1 dummy variable), which is our variable for the extensive
margin of exports, has a mean of 0.38. The SME status
dummy variable, constructed from the ocial denitions of
small and medium enterprises, has a mean of 0.85. The mean
number of employees (permanent, full-time employees at end
of previous year) is 181.9. 13
Control variables for rm characteristics (and sample mean)
are also included in Table 2. Firm age is the year an
establishment began operations (21.2 years). Manufacturing
sector is a 0/1 dummy variable that indicates whether the
establishment operates in the manufacturing sector (0.68).
The foreign ownership variable is the % of equity owned by
private foreign individuals, companies or organizations
(8.55%). The employees with university degree variable is the
% of full-time permanent workers with at least a bachelor
degree at the end of the previous year (16.46%). ISO certication is a 0/1 dummy variable that indicates whether or not the
establishment has an internationally-recognized quality ISO
certication (0.33). Financial audit is a 0/1 dummy variable
that indicates whether the nancial statements are checked
and certied by external auditor in previous year (0.64).
The estimation sample is used with some reservations. First,
the year of survey varies across countries (as reported in

Table 1). Second, there is no panel dimension of the rm characteristics (the statistics of Table 2 summarize cross-section
information). Third, there are minor dierences in the survey
questions across countries and years. The rst and second
issues dictate that the panel estimation methodology is not
applicable for our empirical analysis and thus we are less
assertive on the implications of causality. We have also veried and cross checked the survey questions so that the third
issue has no inuence on the estimation sample, empirical
analysis and the main ndings.
3. EMPIRICAL RESULTS
The issue of endogeneity is the key challenge involved in
analyzing the exportnancial constraint relationship using
rm-level data. Since a rms exports and nancial constraints
are both likely to be inuenced by rm characteristics, estimating an export equation using any nancial variable (a proxy
for nancial constraints) in the regressors, runs the risk of estimation bias due to the correlation between nancial variable
and the error term. Instead, a predicted component of nancial constraints based on additional information from rm
characteristics, or the instrument, should be used in the export
equation to properly estimate the exportnancial constraint
relationship with rm-level data.
We use a two-stage estimation procedure. Denote i for rm
identication and j for sample country, the 2nd-stage equation
of interest is
y ij Y ij b X ij d uij
where y is an export variable [export participation (y d ), share
of exports in total sales (y r )], Y is an endogenous regressor
(bank loan, overdraft facility), and X is a vector of exogenous
regressors.

156

WORLD DEVELOPMENT
Table 2. Summary statistics

Variable

Obs.

Mean

Std. dev.

Min.

Max.

Share of exports in total sales (%)

Export participation (dummy var.)
SME status (dummy var.)
Number of employees
Firm age (years)
Manufacturing sector (dummy var.)
Foreign ownership (%)
Employees with university degree (%)
ISO certication (dummy var.)
Bank loan (%)
No-need-for-a-loan respondent (dummy var.)
Overdraft facility (dummy var.)
Financial audit (dummy var.)
Market-based nancial structure measure

5942
5981
5981
5981
5981
5981
5611
5919
5933
5401
5981
5383
5971
5981

17.20
0.38
0.85
181.91
21.12
0.68
8.55
16.46
0.33
16.95
0.40
0.62
0.64
0.95

31.32
0.49
0.36
747.28
17.45
0.47
25.59
22.89
0.47
26.85
0.49
0.48
0.48
0.50

0
0
0
0
0
0
0
0
0
0
0
0
0
0.52

100
1
1
21,955
210
1
100
100
1
100
1
1
1
1.93

This table provides summary statistics of variables in the estimation. The sample includes rms from Chile (1,033 rms; 17.27%), Israel (483 rms; 8.08%),
Korea (598 rms; 10.00%), Mexico (1,480 rms; 24.75%), Thailand (1,043 rms; 17.44%), and Turkey (1,344 rms; 22.47%). The SME status dummy
variable is based on the national denition of small and medium enterprises. Number of employees is the number of permanent, full-time employees at end
of previous year. Firm age is the year an establishment began operations. Foreign ownership is the % of equity owned by private foreign individuals,
companies or organizations. Employees with university degree is the % of full-time permanent workers with at least a bachelor degree at end of previous
year. ISO certication indicates whether the establishment has an internationally-recognized quality ISO certication. Bank loan is a proportion of a rms
working capital that was nanced by borrowing from banks. No-need-for-a-loan respondent indicates that the establishment did not apply for any loan
because, as responded in the survey, there is sucient capital. Overdraft facility indicates whether or not the establishment has an overdraft facility.
Financial audit indicates whether nancial statements are checked and certied by an external auditor in a previous year. Market-based (vs. bank-based)
nancial structure is a ratio of stock market capitalization to deposit money banks. The data are drawn from the Financial Development and Structure
Dataset (November 2013) and the Enterprise Surveys (March 2015).

In the 1st-stage, the auxiliary equation is

0

Y ij P Z ij mij
where Z is a vector of exogenous instruments; Euij Z ij 0.
The two-stage estimation is a classical instrumental variable
regression, with the auxiliary equation is the projection of Y
on Z, and the sampling assumption requires that
y ij ; Y ij ; Z ij ; X ij are i.i.d.
Table 3 reports the rst-stage results (auxiliary equation),
focusing on the association of bank loans and overdraft facilities (dependent variables) with loan needs and rm characteristics (explanatory variables). The estimation is done for the
pooled sample of all rms, for the subsample of non-SME
rms, and for the subsample of SME rms.
The dummy variable No-need-for-a-loan respondent,
used as a proxy of loan needs, is negative and statistically signicant across the pooled sample and subsamples of SME and
non-SME rms, in the use of bank loan equation (columns I
III) and in the availability of overdraft facility equation (columns IVVI). When rms responded in the survey that they
have sucient capital, this additional information is associated
negatively with the observed use of bank loans and the availability of overdraft facilities in the data, all else being equal.
In the pooled sample of all rms, we also nd that SME status is associated with lower use of bank loans and availability
of overdraft facilities. Other rm characteristics are also statistically correlated with the use of bank loans and the availability
of overdraft facilities as follows. Overdraft facilities are more
available to older rms. The percentage of foreign ownership
is negatively associated with the use of bank loans and the
availability of overdraft facilities. Firms in the manufacturing
sector are more likely to use more bank loans. Financial audits
are positively associated with higher use of bank loans and
availability of overdraft facilities, specically for SMEs. We
also note that the market-based nancial structure measure,
as well as the period before and the period after the global
nancial crisis, are associated with higher use of bank loans
and availability of overdraft facilities in the sample countries.

Table 4 reports the 2nd-stage estimation results (equation of

interest), focusing on the association between the share of
exports in total sales (y r , dependent variable) and nancial
constraints (endogenous regressors), controlling for rm characteristics in the regressions. The use of a bank loan variable
enters as an endogenous regressor in the export equation
reported in columns I-III, while the availability of overdraft
facilities enters as endogenous regressor in the export equation
reported in columns IV-VI.
The estimation results suggest that both the bank loan variable and the overdraft facility variable are positively associated with the share of exports in total sales. The association
is statistically signicant in the pooled sample of all rms
and in the subsample of SMEs. The ndings thus provide support for the importance of the nancial constraintexport
relationship, especially for SMEs.
Other control variables in the export equation have the
expected signs and statistical signicance in the estimation.
SME status is negatively associated with the share of exports
in total sales. The percentage of foreign ownership, ISO certication dummy variable, and manufacturing sector dummy
variable are all positively associated with the share of exports
in total sales. We also nd that older rms and rms in the
more market-based nancial structures have a lower share of
exports in total sales. The period before and the period after
the global nancial crisis are associated with higher shares of
exports in total sales for rms in our sample countries.
The estimation of the export equation performs reasonably
well, explaining about a half of the variation in the non-SME
subsample and a third of the variation in the SME subsample.
While the estimated explanatory power still leaves a signicant
unexplained variation, we note a mass at zero of the share of
exports in total sales in the data, an empirical issue that we will
further address shortly. As also shown in Table 4, the endogeneity test rejects the null hypothesis that the bank loan variable and the overdraft facility variable, the two endogenous
regressors in our specication, can be treated as exogenous
in the pooled sample and the SME subsample, supporting

control vars.
No-need-for-a-loan respondent (dummy var.)
SME Status (dummy var.)
Firm age (years)
Foreign Ownership (%)
Manufacturing sector (dummy var.)
Financial audit (dummy var.)
Market-based nancial structure measure
Before the global nancial crisis (200507) obs.
After the global nancial crisis (201113) obs.
Constant term
Obs.
R-sq.
Log likelihood

Bank Loan (%): OLS

Pooled Sample
coe. (std. err.)
(I)
17.335
(.696)***
3.561
(1.054)***
.180
(.205)
.076
(.015)***
3.165
(.725)***
5.409
(.720)***
6.540
(1.112)***
16.019
(1.271)***
10.373
(1.167)***
9.525
(2.116)***
5337
.165
24624.128

Non-SM coe.
(std. err.)E
(II)

Overdraft facility (0/1 dummy var.): Probit

SME coe.
(std. err.)
(III)

18.363
(2.147)***

17.015
(.733)***

.486
(.450)
.134
(.027)***
4.169
(2.141)*
.391
(3.730)
6.790
(3.223)**
23.266
(3.633)***
4.722
(3.356)
15.391
(6.382)**
729
.239
3399.373

.050
(.232)
.052
(.018)***
2.730
(.772)***
5.319
(.730)***
6.754
(1.183)***
14.584
(1.357)***
11.209
(1.242)***
5.510
(1.940)***
4608
.150
21202.679

Pooled Sample
coe. (std. err.)
(IV)

Non-SME coe.
(std. err.)
(V)

.310
(.041)***
.242
(.062)***
.051
(.013)***
.003
(.001)***
.006
(.045)
.328
(.045)***
1.928
(.068)***
2.125
(.085)***
2.209
(.069)***
2.641
(.124)***
5013

.264
(.114)**

2606.674

.093
(.028)***
.003
(.001)**
.145
(.117)
.219
(.212)
1.741
(.201)***
2.046
(.206)***
1.911
(.190)***
2.501
(.366)***
784
380.894

SME coe.
(std. err.)
(VI)
.318
(.044)***

.039
(.014)***
.002
(.001)**
.019
(.049)
.331
(.047)***
1.972
(.073)***
2.144
(.097)***
2.257
(.074)***
2.902
(.117)***
4229
2220.993

This table reports 1st-stage results of the instrumental variable estimation. The dependent variables are a rms use of bank loans as measured by a proportion of working capital that was nanced by
borrowing from banks (%) and rms availability of an overdraft facility (0/1 dummy variable). No-need-for-a-loan respondent indicates that the establishment did not apply for any loan because, as
responded in the survey, there is sucient capital. The sample is based on rm-level observations from the Enterprise Surveys, covering Chile (17.27%), Israel (8.08%), Korea (10.00%), Mexico (24.75%),
Thailand (17.44%), and Turkey (22.47%). Standard errors are in parenthesis; *** (**, *) denotes statistical signicant at 1 (5, 10) percent level.

AN EMPIRICAL ASSESSMENT OF THE EXPORTFINANCIAL CONSTRAINT RELATIONSHIP

Table 3. Loan needs, bank loan, overdraft facility, and rm characteristics 1st stage estimation (auxiliary equation)
1st-Stage of instrumental variable estimation
(Auxiliary equation)

157

158

Table 4. Exports and nancial constraint 2nd stage estimation (equation of interest)
2nd-Stage of instrumental variable estimation (Equation of interest) control vars.

Share of exports in total sales (%)

Pooled Sample
coe.
(std. err.) (I)

Bank loans (endog., instrumented)

.183
(.045)***

Non SME
coe.
(std. err.) (II)
.104
(.139)

SME coe.
(std. err.) (III)

Firm age (years)

Foreign ownership (%)

Manufacturing sector (dummy var.)

Employees with university degree (%)
Market-based nancial structure measure
Before the global nancial crisis (200507) obs.
After the global nancial crisis (201113) obs.
Constant term
Obs.
R-sq.
Overidentifying restrictions Sargan test (p-value)
Endogeneity test (p-value): endog. var. can be treated as exogeneous
Underidentication test Anderson canon. corr. LM statistic
Weak identication CraggDonald Wald F statistic

1.599
(.541)***
.137
(.040)***
9.213
(2.605)***
22.088
(2.772)***
.001
(.053)
2.391
(4.097)
26.629
(6.009)***
17.450
(4.121)***
.017
(6.346)
725
.574
.440
.257
67.36
36.57

19.087
(7.253)***
8.729
(1.432)***
.855
(.280)***
.190
(.020)***
6.694
(1.113)***
10.258
(.976)***
.027
(.024)
17.277
(4.988)***
3.989
(6.229)
1.608
(5.637)
21.696
(4.065)***
4960
.325
.004
.001
100.85
51.35

21.750
(28.182)

SME coe.
(std. err.) (VI)

.305
(.267)
.196
(.021)***
6.708
(.985)***
9.093
(.934)***
.001
(.019)
7.987
(1.421)***
1.187
(1.831)
12.743
(1.528)***
6.811
(2.175)***
4542
.304
.975
.000
518.99
292.26

1.005
(.837)
.102
(.044)**
7.501
(2.876)***
22.781
(2.930)***
.160
(.067)**
15.947
(15.431)
43.932
(19.788)**
33.248
(17.102)*
12.118
(9.153)
765
.561
.546
.476
8.18
4.07

25.290
(7.697)***

.591
(.315)*
.208
(.025)***
5.757
(1.238)***
8.488
(1.074)***
.006
(.027)
22.959
(5.475)***
14.613
(6.797)**
4.295
(6.181)
19.497
(4.807)***
4195
.206
.004
.000
90.64
46.20

This table reports 2nd-stage results of the instrumental variable estimation. The dependent variable is a rms share of exports in total sales (%). The endogenous regressors are bank loans (% of total
nance) and overdraft facilities (0/1 dummy var.); their instrumented estimates from the 1st-stage estimation are used. The sample is based on rm-level observations from the Enterprise Surveys,
covering Chile (17.27%), Israel (8.08%), Korea (10.00%), Mexico (24.75%), Thailand (17.44%), and Turkey (22.47%). Standard errors are in parenthesis; *** (**, *) denotes statistical signicant at 1 (5, 10)
percent level.

WORLD DEVELOPMENT

ISO certication (dummy var.)

9.999
(1.256)***
.568
(.237)**
.199
(.018)***
7.655
(.921)***
10.931
(.886)***
.010
(.018)
7.300
(1.340)***
2.677
(1.757)
13.238
(1.433)***
14.923
(2.371)***
5267
.366
.691
.000
596.78
335.75

Non SME
coe.
(std. err.) (V)

.206
(.048)***

Overdraft facilities (endog., instrumented)

SME Status (dummy var.)

Pooled Sample
coe.
(std. err.) (IV)

AN EMPIRICAL ASSESSMENT OF THE EXPORTFINANCIAL CONSTRAINT RELATIONSHIP

159

Table 5. Marginal Eects of Control Variables: Loan-Needs SMEs vs. Other Firms
Dependent var. is export participation
(0/1 dummy var.)
Logit Estimation Control vars.

Bank Loans (endog., instrumented)

Overdraft Facilities (dummy var.)
Firm age (years)
Foreign Ownership (%)
ISO certication (dummy var.)
Manufacturing sector (dummy var.)
Employees with a university degree (%)
Market-based nancial structure measure
Obs.
R-sq.
Chi-sq. test (p-value): Estimate of Bank
Loan in Loan Needs eq.
= Sucient Capital eq.
Chi-sq. test (p-value): Estimate of
Overdraft Facility in Loan
Needs eq. = Sucient Capital eq.

Export participation
coe./std. err.
Loan needs,
non SME
(I)

Export participation
coe./std. err.
Sucient capital,
non SME
(II)

0.0008
0.0148
0.7731
0.5987
0.0102
0.0103
0.0013
0.0012
0.1257
0.0464
0.2548
0.0468
0.0010
0.0009
0.4737
0.3012
565
.244

0.0038
0.0237
1.7139
1.1831
0.0006
0.0217
0.0045
0.0015
0.0903
0.0696
0.2376
0.0665
0.0001
0.0017
1.3087
0.6285
259
.281

Export participation
coe./std. err.
Loan needs,
SME
(III)

Export participation
coe./std. err.
Sucient capital,
SME
(IV)

0.0084
0.0070
1.7412
0.3792
0.0059
0.0074
0.0041
0.0005
0.1267
0.0202
0.1973
0.0237
0.0004
0.0005
1.1273
0.2030
2715
.170

0.0043
0.0134
0.9240
0.7051
0.0061
0.0142
0.0040
0.0005
0.1346
0.0235
0.2399
0.0362
0.0006
0.0009
0.6863
0.3896
1981
.195

0.03
(0.9850)

4.86
(0.0882)

1.60
(0.4491)

22.32
(0.0000)

This table reports average marginal eects based on logit regressions of export participation (0/1 dummy variable) as a dependent variable. The
endogenous regressors are bank loans (% of total nance) and overdraft facilities (0/1 dummy var.); their instrumented estimates from the 1st-stage
estimation are used. Constant term and before/after global nancial crisis dummy variables included but not reported. The sample is based on rm-level
observations from the Enterprise Surveys, covering Chile (17.27%), Israel (8.08%), Korea (10.00%), Mexico (24.75%), Thailand (17.44%), and Turkey
(22.47%). Standard errors are calculated by the delta method.

the treatment of these two nancial variables as endogenous in

the two-stage estimation.
On the validity of the two-stage instrumental variable estimation, we nd a mixed set of test statistics, but overall a supportive one. The Sargan test cannot reject the null hypothesis
that the over-identifying restrictions are valid (that the instruments are valid instruments, i.e., uncorrelated with the error
term, and that the excluded instruments are correctly excluded
from the estimated equation) in the export equation using the
bank loan variable, but not the export equation using the
overdraft facility variable. Except for the non-SME subsample, the under-identication test rejects the null hypothesis that
the equation is under-identied (the excluded instruments are
irrelevant and uncorrelated with the endogenous regressors)
and the weak identication test also rejects the presence of
weak instruments in the estimation. 14
We now provide the robustness checks and examine the economic signicance of our estimation in more detail. To study
the relationship between nancial constraints and the extensive margin of exports, we retool our 2nd-stage export equad
tion,
 using exportparticipation (y ) as the
dependent variable:
d
Pr y ij 1jY ij ; X ij F Y ij b X ij d uij
with a cumulative standard logistic distribution in the error
term. We include both the bank loan variable and the overdraft facility variable simultaneously in order to horse race
them in the estimation.
Table 5 reports the average marginal eects of control
variables in the export participation equation. For the coecient estimates of nancial variables, the availability of an

overdraft facility is statistically signicant and positively

associated with a rms export participation particularly for
SMEs with loan needs (column III). On the other hand,
the use of bank loans has an unexpected negative sign and
is statistically insignicant. The results suggest that export
participation increases with the exibility of nance, not
the quantity of nance, underlying our main ndings from
the estimation.
The ndings of Table 5 also suggest that the availability of
overdraft facilities is the most economically signicant variable. While the percentage of foreign ownership, ISO certication, and the manufacturing sector dummy variable are all
statistically signicant, their marginal eects are much smaller
than that of the overdraft facility variable, supporting our
conjecture that the exibility of nance helps improve the
explanatory power in the estimation of the exportnancial
constraint relationship.
We nd that the dierence between SMEs with loan needs
and SMEs with sucient capital is statistically signicant in
terms of the association between exports and the availability
of overdraft facility variable. The equality test of coecient
estimates on the overdraft facility variable in the subsample
of SMEs with loan needs and the subsample of SMEs with sufcient capital can reject the null hypothesis that they are equal
across the two subsamples.
Given that the share of exports in total sales is bounded
between zero and one, and exhibits a mass point at zero (summary statistics of Table 1 and Figure 2), we further revise the
econometric specication by regressing the 2nd-stage equation
as a fractional logit model taking into account both the

160

WORLD DEVELOPMENT
Table 6. Benchmark Results - Generalized Linear Model (GLM) Estimation

Dependent var. is share of exports in total

sales (%) generalized linear model (GLM)
estimation control vars.
Bank loans (endog., instrumented)
Overdraft facilities (endog., instrumented)
SME status (dummy var.)
Firm age (years)
Foreign ownership (%)
ISO certication (dummy var.)
Manufacturing sector (dummy var.)
Employees with a university degree (%)
Market-based nancial structure measure
Before the global nancial crisis (200507)
After the global nancial crisis (201113)
Constant term
Dispersion
Scaled Pearson dispersion
AIC
Log likelihood
Obs.

Share of exports in total sales (%)

Coe. (std. err.)
pooled sample (I)
.002
(.009)
2.066
(1.131)*
.527
(.117)***
.065
(.030)**
.014
(.002)***
.416
(.098)***
.953
(.099)***
.002 (.002)
(.002)
1.916
(.673)***
1.133
(.741)
.411
(.771)
1.255
(.544)**
.51
.60
3872.73
1924.37
5491

Coe. (std. err.)

non-SME (II)
.008
(.016)
2.100
(2.707)

.032
(.078)
.006
(.003)**
.555
(.222)**
1.366
(.224)***
.001
(.004)
1.100
(1.318)
2.355
(1.504)
2.184
(1.551)
3.346
(.827)***
.55
.51
766.13
372.07
812

Coe. (std. err.)

SME (II)
.001
(.011)
2.861
(1.331)**

.055
(.034)
.017
(.002)***
.352
(.112)***
.876
(.112)***
.003
(.002)
2.643
(.826)***
1.981
(.904)**
1.045
(.938)
1.105
(.723)
.50
.62
3093.95
1535.98
4679

This table reports benchmark estimation results based on the Generalized Linear Model (GLM), using maximum likelihood with Bernoulli/binomial
distribution of dependent variable (share of exports in total sales) and logit link function. The endogenous regressors are bank loans (%) and overdraft
facilities (0/1 dummy var.); their instrumented estimates from the 1st-stage estimation are used. The sample is based on rm-level observations from the
Enterprise Surveys, covering Chile (17.27%), Israel (8.08%), Korea (10.00%), Mexico (24.75%), Thailand (17.44%), and Turkey (22.47%). Standard errors
are in parenthesis; *** (**, *) denotes statistical signicant at 1 (5, 10) percent level.

extensive margin (export participation) and the intensive margin (share of exports in total sales):
Ey rij jY ij ; X ij Ey rij jY ij ; X ij ; y dij 1  Pry dij 1jY ij ; X ij
The share of exports in total sales equation is estimated with
a Generalized Linear Model (GLM), using maximum
likelihood with Bernoulli/binomial distribution and logit link
function. 15 The estimation results are reported in Table 6.
As shown, the availability of an overdraft facility variable is
positively associated with the share of exports in total sales in
the pooled sample and in the SME subsample. The use of a
bank loan variable remains insignicant in the equation of
the share of exports in total sales. These results further support
our ndings in the export participation equation that the exibility of nance is an important link in the nancial constraintexport relationship, particularly so for SME rms.
Based on the benchmark estimates of Table 6, we also nd that
the control variables have statistically signicant coecient estimates, both in the intensive margin of exports and in the extensive margin of exports. These variables are SME status (),
percentage of foreign ownership (+), ISO certication (+), manufacturing sector dummy variable (+), and market-based (vs.
bank-based) nancial structure measure ().
As a precautionary exercise and verication, we conduct the
GLM estimation without using the instrumented endogenous
regressors (i.e., skipping the 1st-stage estimation of the nancial

variables), and report this additional set of results in Appendix

Table 7. The results indicate estimation bias in the coecient
estimate of the overdraft facility variable, supporting the importance of addressing the endogeneity issue in the estimation of
exportnancial constraint relationship in our study sample.
Finally, we summarize the estimation results and the main ndings by reporting in Figure 3 the economic signicance of control
variables to highlight their explanatory power on the share of
exports in total sales for rms in our sample. Each bar in the gure
represents the economic signicance of the corresponding control
variable, calculated from a product of the control variables coefcient estimate (Table 6, column I) and its sample standard deviation (summary statistics in Table 2) for the pooled sample of
rms drawn from the Enterprise Surveys data.
As shown in the gure, the availability of an overdraft facility is the most economically signicant variable. A standard
deviation increase of this variable is associated with doubling
the share of exports in total sales for an average rm in the
sample. The economic signicance of the overdraft facility
variable is comparable to, but on the opposite direction with,
the market-based nancial structure variable. This suggests
that rms in an economy with a bank-based nancial structure
have a higher share of exports in total sales than rms in an
economy with a market-based nancial structure.
Other control variables are also economically signicant in
their association with the share of exports in total sales. In
order of their signicance, these are: the manufacturing sector

AN EMPIRICAL ASSESSMENT OF THE EXPORTFINANCIAL CONSTRAINT RELATIONSHIP

Overdraft facilities (dummy var.)

1.00

Manufacturing sector (dummy var.)

0.45

Foreign ownership (%)

0.36

ISO certification (dummy var.)

0.20

Bank loans (endog., instrumented)

0.05

Employees with a university degree (%)

-0.05

Firm age (years)

-0.11

SME status (dummy var.)

Market-based financial structure measure

-1.50

161

-0.19

-0.95

-1.00

-0.50

0.00

0.50

1.00

1.50

Figure 3. Economic signicance of control variables on the share of exports in total sales. This gure reports the economic signicance of each control variable,
calculated from a product of variables coecient estimate (Table 6, column I) and its sample standard deviation (Table 2) from the pooled sample of rms.
The data are drawn from the Enterprise Surveys and the Financial Structure Database.

dummy variable, the percentage of foreign ownership, ISO certication, and SME status. In sum, the economic signicance
of the control variables found in our analysis suggests that
the pre-conditions for exporting, both in the extensive margin
and in the intensive margin, collected in the literature (i.e., rm
size, product quality, foreign ownership) remain important factors for rms in our sample countries. Most importantly, we
nd that nancial constraints, specically the exibility of
nance available to rms (as measured by the availability of
an overdraft facility variable) have a large economic signicance on the intensive margin and the extensive margin of
exports, particularly so for the SMEs with loan needs.
4. CONCLUSION
Using rm-level data drawn from the World Banks Enterprise
Surveys in Chile, Israel, Korea, Mexico, Thailand, and Turkey,
we analyze factors associated with the exportnancial constraint relationship, focusing on dierences between SMEs and
other rms. The empirical analysis suggests the importance of
(i) accounting for whether a rm actually needs a loan to address
demand conditions and supply constraints for loanable funds,
(ii) dierentiating the quantity of nance (i.e., use of bank loans)
and the exibility of nance (i.e., availability of an overdraft

facilities) in the nancing of working capital, investment, and

business expansion, and (iii) addressing a probability mass at
zero of the SME exports observed in the data.
We nd that the availability of an overdraft facility is the most
economically signicant variable in the exportnancial constraint relationship, particularly so for SMEs with loan needs
in our sample countries. The percentage of foreign ownership,
ISO certication, and operation in manufacturing sector are
also signicant and positively associated with a rms export
participation (extensive margin) and rms share of exports in
total sales (intensive margin). These main ndings are robust
to a battery of econometric specications and statistical tests
applied on the rm-level data from our sample countries.
The policy implications could go beyond our sample and
estimation results. The nding of a large economic signicance
of the overdraft facility variable is consistent with a growing
concern from SMEs that the regulatory response to the Global
Financial Crisis has forced banks to tighten risk management,
thereby raising the rejection rates of overdraft and loan applications from SMEs. 16 For SMEs in developing countries and
emerging markets, the improvement of alternative nancing
forms and supportive government interventions has become
ever more challenging. Obviously the topic will continue to
benet from enhanced policy discussion and future research. 17

NOTES
1. We follow the national denition of SMEs based on the number of
full-time employees: Chile250 employees, Israel100 employees,
Korea300 employees, Mexico250 employees, Thailand200 employees, and Turkey250 employees. Section 2 provides a more detail
description of the alternative SME denitions and statistics.

that credit shocks have no signicant impact on entry or exit of rms to

new product and destination markets, but aect the intensive margin of
exports through raising the variable cost of production; and Antra`s and
Foley (2015) for evidence on the importance of cash in advance and open
account terms in international trade transactions.

2. Related studies on nance and trade are numerous. For recent ones,
see Paravisini, Rappoport, Schnabl, and Wolfenzon (2015) for evidence

3. I.e., domestic credit provided by commercial banks, as a percentage of

GDP.

162

WORLD DEVELOPMENT

4. For studies on access to credit and growth of SMEs, see Ayyagari,

Beck, and Demirguc-Kunt (2007), Beck and Demirguc-Kunt (2006),
Berger and Udell (2006), de la Torre, Martinez, and Schmukler (2010),
Harvie, Narjoko, and Oum (2013), Nichter and Goldmark (2009), OECD
(2012), and Vos, Yeh, Carter, and Tagg (2007).
5. See Helpman (2011) and Wagner (2012) for a review of the literature
on rm heterogeneity and exports, and Bernard and Jensen (2004) for
empirical evidence of entry costs, participation and exit decision in the
export markets.
6. In the data, this variable is the percentage of a rms working capital
that was nanced by borrowing from banks. The rest are nanced from
internal funds/retained earnings, non-bank nancial institutions, purchases on credit from suppliers and advances from customers, and other
sources (e.g., money lenders, friends, relatives).
7. In the data, this variable is an indicator of whether a rm has access to
an overdraft facility.
8. In addition to data availability, our choice of countries is also deliberate,
as we select countries where policy makers and international organizations
have monitored SMEs extensively. See for example IADB (2010) and USAID
(2007) for Chile and Mexico, ADB (2014) for Korea and Thailand, and
OECD (2014) for periodical coverage of our sample countries.
9. Compiled by the Enterprise Analysis Unit, a part of the World Bank
Group. The Enterprise Surveys database maintains rm-level surveys for
each participating country as a representative sample of countrys private
sector. The surveys cover access to nance, corruption, infrastructure,
crime, competition, and performance measures. Economists and rm-level
survey experts collect the rm-level data from face-to-face interviews with
managers and business owners.

12. See Cihak, Demirguc-Kunt, Feyen, and Levine (2012) for an

attempt to benchmark nancial structures internationally. In Korea,
large corporations have increasingly accessed nancing using corporate
bonds and equity, while the banking sector is focusing on SME loans.
Another important consideration is the banking structure. However,
international studies are hampered by limited information on SME
lending by domestic banks. In Israel, for example, over 95% of the
bank credit to SMEs was due to the ve major banking groups
(OECD, 2014). Shen, Shen, Xu, and Bai (2009) examines the role of
bank size on SME lending in China and suggest that healthy
competition and better law enforcement encourage commercial banks
to lend more to SMEs.
13. Our average rm size is therefore below the most frequently used
upper limit designating SME of 250 employees, and much below the US
limit of 500 employees.
14. For the SME subsample using the overdraft facility as an endogenous regressor (column VI), the under-identication test (Anderson
canonical correlation) LM test statistic is 90.64 and the Chi-sq. p-value
is 0.0000. The weak identication (Cragg-Donald) Wald test statistic is
46.20 while the Stock and Yogo (2005) weak identication test critical
values are 19.93 for 10% maximal IV size, 11.59 for 15% maximal IV size,
8.75 for 20% maximal IV size, and 7.25 for 25% maximal IV size.
15. For the applications of fractional logit models, see Wagner (2001)
and Egger and Kesina (2014).

10. The evidence (e.g., Beck, Demirguc-Kunt, & Levine, 2005) is less
conclusive on whether SMEs causally impact economic growth.

16. See van der Schans (2012) for the importance of bank overdrafts in
SME nance in the UK. Armstrong, David, Liadze, and Rienzo (2013)
provide evidence from the UK that the tight credit supply conditions
continue beyond the height of the Global Financial Crisis and that the
rejection rates of applications for bank nancing have increased
(particularly for low and average risk SMEs previously viewed as safe
for banks) even compared to the period of the Crisis.

11. We do not have comparable cross-country data on the proportion of

loans authorized to loans requested at rm level for SMEs and non-SMEs.
In Chile, the ratio of loans authorized to loans requested for SMEs in 2010
was 61.1%, and for large rms was 98.8%. The ratio was 71.54% in 2007
for SMEs in Thailand.

17. Interestingly, German SMEs, known as Mittelstand, have become

less reliant on bank borrowing and more on equity nance, while access to
capital market instruments (e.g., Mittelstand bonds) remains limited and
are available to only large rms (Bottcher, 2013).

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APPENDIX. A

Table 7. GLM results with endogenous regressors not instrumented

Dependent var. is share of exports in total
sales (%) generalized linear model (GLM)
estimation control vars.
Bank loans (endog., not instrumented)
Overdraft facilities (endog., not instrumented)
SME status (dummy var.)
Firm age (YEARS)
Foreign Ownership (%)
ISO certication (dummy var.)
Manufacturing sector (dummy var.)
Employees with a university degree (%)
Market-based nancial structure measure
Before the global nancial crisis (200507)
After the global nancial crisis (201113)
Constant term
Dispersion
Scaled Pearson dispersion
AIC
Log likelihood
Obs.

Share of exports in total sales (%)

Coe. (std. err.)
Pooled Sample (I)
.002
(.002)
.326
(.097)***
.587
(.115)***
.034
(.026)
.012
(.002)***
.586
(.089)***
.860
(.105)***
.004
(.002)
.324
(.179)*
1.149
(.217)***
1.405
(.177)***
2.377
(.292)***
.52
.60
3389.16
1682.58
4739

Coe. (std. err.)

Non-SME (II)
.001
(.003)
.172
(.236)

.094
(.048)**
.008
(.003)***
.554
(.229)**
1.469
(.261)***
.010
(.005)**
.364
(.365)
1.857
(.449)***
1.296
(.382)***
3.526
(.610)***
.52
.50
611.43
294.72
679

Coe. (std. err.)

SME (II)
.002
(.002)
.362
(.107)***

.017
(.031)
.015
(.002)***
.562
(.098)***
.746
(.115)***
.003
(.002)
.487
(.210)**
.903
(.260)***
1.430
(.203)***
2.747
(.311)***
.51
.62
2769.31
1373.66
4060

This table reports benchmark estimation results based on the Generalized Linear Model (GLM), using maximum likelihood with Bernoulli/binomial
distribution of dependent variable (share of exports in total sales) and logit link function. The endogenous regressors are bank loans (%) and overdraft
facilities (0/1 dummy var.); both are not instrumented. The sample is based on rm-level observations from the Enterprise Surveys, covering Chile
(17.27%), Israel (8.08%), Korea (10.00%), Mexico (24.75%), Thailand (17.44%), and Turkey (22.47%). Standard errors are in parenthesis; *** (**, *) denotes
statistical signicant at 1 (5, 10) percent level.

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