China has achieved a tremendous export growth despite the lack of a well-developed financial system over the last three decades. This paper tries to explain the puzzle from the cluster-based trade credit point of view. Using firm-level Annual Survey of Industrial Production data for China over the period of 1999-2007, we find that not only total trade credit received by a cluster can significantly promote firms’ export within the cluster, but net trade credit received from external clusters also have a positive effect on export of these firms. Further results show that clustering trade credit has a significantly positive effect on private firms with no effect on state-owned enterprises (SOEs) or foreign invested enterprises (FIEs). Additionally, firms in clusters that exhibit higher level of trade credit are more likely to enter the export market. The mechanism identified is that clustering trade credit help alleviate firm’s financial constraint thereby improving non-exporters’ likelihood to export and expanding export level of exporters. To address potential endogeneity concerns of trade credit, we apply changes in firm location as a quasi-natural experiment finding the results are robust. Placebo test shows that trade credit has no significant effect on processing exports. The results are consistent with the fact that private enterprises in China have achieved a rapid export growth despite having almost no access to formal financing since China’s market-oriented reform compared to SOEs and FIEs.
