(Areas I, II and IV in Figure 4 ) and ii) when firms are not financially constrained (Areas III, V and VI in Figure 4 ), export status of the firm is driven by productivity and changes in working capital does not change the export status of the firm. Thus the main test of the theoretical model is to see whether cash only affects export decisions when firms are financially constrained and at the same time, whether productivity affect export decisions when firms are not financially constrained. Let _fc_ be a dummy that indicates whether the firm is financially constrained, that is whether _Xi < X_<sup> ̄</sup> .<sup>2829</sup> The empirical specification is as follows: The test involves four predictions on the estimated coefficients: a) the interaction between financial constraints and working capital, _β_ 1, is positive and significant, b) the coefficient for working capital only, _β_ 2, should not be significantly different from zero, c) the coefficient for productivity when not constrained, _β_ 4, should be positive and significant and d) the coefficient for productivity under constraints _β_ 3 is the negative of _β_ 4 and significant in order for productivity to not affect exports under financial constraints. That is: The 2002 Bangladesh data set contains information on the percentage of sales that are exported. Out of the 974 firm observations, only 76 firms reported exporting less than 100 percent. The majority of firms report zero exports with about a third of the firms reporting 100 percent exports. The model does not offer any qualifications on how many firms in the population would export less than 100 percent. However, the fact that the model does predict that there will exist firms who will choose to export less than 100 percent, even in the presence of exporting fixed cost, is a unique and important characteristic of the model. The small number of observations of export percentage makes identification difficult and as a result, the dependent variable used is a export status dummy, _E_ , that is equal to one if the firm engaged in any exports.

The financial constraint variable, _fc_ , is a dummy that is equal to one if the firm reports access to finance as a problem (from minor to major severity) and finances working capital entirely from internal finance (that is, does not use any borrowing from any other sources). The rationale behind interacting these two conditions is that firms may report access to finance as a problem when they actually do have access to borrowing. The measure does however, leave out firms that are able to borrow but remain financially constrained due to reaching borrowing limits or quotas. In this sense, it may not capture all possible financially constrained Working capital, _X_ , is measured according to the accounting definition: current assets (inventories, accounts receivable, cash and short-term credit) minus current liabilities (accounts payable and any short-term debt). Productivity, _A_ , is measured as total factor productivity estimated according to **?** and the production function is estimated for each sector.<sup>30</sup> Controls for other variables in the model that were available from

> 28Note that financial access questions are only available for 2002, and thus the number of observations available for estimation is 990.

> 29See **?** for further examination of the financial access variable including sources of variation that determines access to finance.

> 30Estimates using Levinsohn- Petrin (LP2) does not change sign nor significance, but do to some extent change the size of the

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