Financial development and the share of imported capital goods in developing countries: firm-level evidence

Firm-level estimations across a sample of seven developing countries suggest that a higher firm's leverage - a proxy for credit constraints - reduces the share of imported capital goods in total capital expenditures. This result holds across different models such as a two-limit tobit and a fractional logit model. It is also confirmed after controlling for unobserved firm heterogeneity, state dependence or when using the share of property in total assets as an alternative credit constraint indicator. The results also indicate that the importance of credit constraints is significantly reduced in financially more developed countries.