bond) markets and of the composition of the banking sector (domestic versus foreign banks). We further supplement our main databases with a variety of other sources of information on the regulation, supervision and auditing of banks (e.g., the World Bank Banking Supervision Survey), the reliance of industries on external financing, the occurrence of financial, banking or external crises, and the degree of informational and contractual complexity of export products.

To identify the causal impact of financial structures on export dynamics, we employ the difference-in-difference approach originally proposed by Rajan and Zingales (1998) and adopted by Manova (2012) to isolate the impact of financial factors on firms’ export. In particular, we test whether the impact of financial structures on firms’ export dynamics is stronger in industries in which firms are more dependent on external finance for technological reasons purely related to the production process.

The baseline results reveal that banks promote the expansion of the export sector, especially the number of exporters, better than decentralized financial markets (stock and bond markets), and this is true even after controlling for the overall size of the financial sector. This finding is consistent with the view that, through continuous monitoring and tight credit relationships, banks can garner better quality information on potential exporters than dispersed investors (Diamond, 1984; Paravisini et al., 2016). However, when we turn to break down this effect into the impact on exporters’ entry and exit, we find that the main driver of the positive impact of bank-oriented financial systems on total export is a significant reduction in the exit rate of exporters. By contrast, banks do not appear to promote entry into export more than capital markets. We next investigate whether the detected effects of banks are attributable to domestic or foreign banks. We uncover evidence that it is especially domestic banks that reduce the exit rate of exporters. In fact, a stronger foreign bank penetration in the banking system boosts exporters’ entry, exit and turnover rates.<sup>1</sup> These results hold for the whole sample of 62 countries and they become economically stronger when we focus on middle- and low-income countries.

As noted by a broad literature in banking (see, e.g., Allen and Gale, 2001), banks’ tendency to keep firms afloat and slow down firm exit could be a symptom of efficient or inefficient behavior. Banks could have a soft budget constraint attitude of the kind initially stressed by Dewatripont and Maskin (1995) and then studied by a sizeable literature on credit markets, especially for developing countries (Mian, 2006). That is, they could roll over financing even to underperforming exporters once they have funded the relevant up-front fixed costs that export activities entail. An alternative interpretation is that banks could have a longer-term attitude, that is be able to renegotiate credit contracts with exporters 1This result is fully robust to including a measure of banking sector concentration (controlling for the fact that foreign banks tend to be larger than domestic ones, especially in middle- and low-income countries). 3