Variable export price elasticity, product quality, and credit constraints: Theory and evidence from Greek firms. (June 2020)

• Record Type: Journal Article
• Authors: Dinopoulos, Elias; Kalyvitis, Sarantis; Katsimi, Margarita
• Is Part Of: Journal of international money and finance. Volume 104(2020)
• Publication Date: 2020-06
• Subjects: F14 -- G32 -- L11 -- L15; Greece -- International trade -- Credit constraints -- Non-homothetic preferences -- Product quality -- Demand elasticity; International finance -- Periodicals; Foreign exchange -- Periodicals; Finances internationales -- Périodiques; Change -- Périodiques; Foreign exchange; International finance; Periodicals; 332.04205
• DOI: 10.1016/j.jimonfin.2020.102135
• Languages: English
• ISSNs: 0261-5606

Abstract

Highlights: We propose a model with credit constraints, endogenous price elasticity and endogenous quality. Credit constraints generate higher prices, higher quality, and less elastic demands. Evidence from Greek firms supports the model's main theoretical predictions. Abstract: We propose a simple model with endogenous quality, additive non-homothetic preferences and credit constraints. A unique data set of Greek manufacturing firms with firm-level exports, credit scores and other financial variables supports the model's main predictions. Specifically, we establish that less credit-constrained Greek exporters with higher credit scores face export demand curves with lower price elasticity, charge higher export prices, and export higher-quality products.