On February 12th, ISET hosted Dr. Andrea Ciani from Bocconi University, who presented his job market paper "Export Quality Upgrading under Credit Constraints".

The speaker began his presentation with a simple example that he used to explain his research paper. The Italian furniture company Kartell is famous for the production of plastic chairs. However, for export purposes, the firm decided to improve the quality of its product and started to produce chairs made from a mix of plastic and expensive materials, such as silver, gold, and even platinum. However, quality upgrades require investment. In many cases, companies have to take credits from local banks for this purpose.

In his paper, Dr. Ciani studies whether credit constraints affect the decision of small and medium-sized enterprises (SMEs) to upgrade the quality of their exported output with respect to the one sold domestically. A detailed firm-level dataset on Italian SMEs (more than 1300) reporting information on output characteristics, credit rationing, and international activities was used for the research. Employing credit scores used by banks for their lending decision as to the proxy for the credit constraint, the author assessed how credit constraints affect export quality upgrading and obtained the results they expected.

The study showed that exporting firms are less likely to upgrade output quality when their credit score worsens. A one standard deviation worsening in a firm’s credit score lowers the probability of quality upgrading by more than 35 percent. Meanwhile, small firms and firms exporting to distant markets are severely impacted by credit constraints.  

Dr. Ciani concluded with a discussion about policy implications, which state that easing credit access to exporting SMEs will help them to reach “potential” revenues in foreign markets.