Does service trade liberalization relieve manufacturing enterprises’ financial constraints? Evidence from China

A growing body of literature has discussed the effect of service trade liberalization on external financial constraints of enterprises in China. Based on a dataset of Chinese manufacturing firms and service trade restriction indices, we contribute to this discussion by analyzing how service trade liberalization affects financial constraints of Chinese enterprises through altering their ability to access external financing, as well as internal financing and commercial credit financing. We find that service trade liberalization alleviates financial constraints of Chinese enterprises through strengthening their ability to obtain both external and internal financing. There exist heterogeneous outcomes for different types of firms. While service trade liberalization eases exporters’ financial constraints, it deteriorates financial constraints of non-exporters through tightening their commercial credit financing. In addition, non-SOEs or SMEs gain from service trade liberalization through easing internal and external financing constraints while SOEs or large enterprises lose due to tightening commercial credit financing constraints. • We study service trade liberalization's impact on Chinese manufacturers' financial constraints. • We construct a measurement including internal, external, and commercial credit financing constraints. • Trade liberalization eases internal and external financial constraints but deteriorates commercial credit constraints. • Trade liberalization's differing effect on SOEs and non-SOEs is due to external financial constraints. • Trade liberalization alleviates SMEs' financial constraints more effectively than large enterprises'.