Credit constraints and firm imports of capital goods: Evidence from middle- and low-income countries

Using firm-level data across developing countries, this paper estimates the effect of credit constraints on machinery and equipment imports (i.e. capital imports). We infer credit constraints from survey questions on the availability and cost of finance instead of relying on firms’ financial situation. After accounting for the potential endogeneity of self-reported credit constraints, the analysis suggests that the probability to import capital goods reduces to almost zero for credit constrained firms. This finding holds after controlling for other relevant firm characteristics and across various specifications and models.