used, at least 96% of predicted probabilities lie between 0 and 1, indicating that the estimates for only less than 4% of the sample may be biased or inconsistent.<sup>10</sup> Even if one focuses on this 4% of observations, Wooldridge (2010) notes that “[...] if the main purpose is to estimate the partial effect of [the independent variable] on the response probability, averaged across the distribution of [the independent variable], then the fact that some predicted values are outside the unit interval may not be very important.” The computational tractability of the LPM also leads us to favor it over the nonlinear alternatives. The alternative of relying on Probit models would lead to biased estimates when including fixed effects because of incidental parameter problems (Greene (2004)). The benefits of accounting for industry and year fixed effects outweigh the costs of relying on LPM, in our view.

Our sample includes periods prior, during and after the recent global crisis, covering the span between the 2002 and 2013 surveys. We explore whether the role of demand and credit constraints evolved over time interacting the main demand and credit shocks with time dummies. The dummy _Crisis_ ? takes value one for the years from 2009 to 2013.

# **3.2 Results**

We test the role and relative importance of demand and credit constraints on the extensive (Equation 1) and intensive (Equation 2) margins of exports. We first conduct the analysis on the full sample and then focus on the crisis period in order to assess the robustness of the results to a period of stress.

We find the usual predictions for export participation of firms: larger, more productive and (at least partially) foreign-owned firms are more likely to become exporters (Table 2). Negative domestic demand shocks can significantly increase the probability to export. Controlling for the heterogeneity in firm characteristics that can affect the firm’s ability to pay for the costs of exporting, a 1% decrease in domestic GDP increases the likelihood of selling abroad by about 0.5%. Production capacity is difficult to change in the short run and when local demand drops, firms are likely to look for alternative markets to sell their products to remain profitable. Thus, as the domestic economy worsens, firms branch out of their national borders in search of potential markets. The importance of domestic demand shocks is unaffected by the crisis (Table 3). The results hold also after controlling for the firm-specific level of utilization of facilities and manpower (Table A.1, A.2).

On the other hand, foreign demand shocks play a more limited role when we consider the full sample. This result suggests that there are other factors that are influencing the choice of export market besides the demand at the destination country.<sup>11</sup> However, when we examine the role of foreign shocks before and after the crisis, they are responsible for as much as 1.8% increase in the probability to export during the non-crisis period. Credit constraints do not significantly influence

> 10Values outside of this range vary at most from -0.04 to 1.08, considering all predicted probabilities across models.

> 11One factor may be the role of business and social networks in providing information and contacts in the destination market. Firms are more likely to export to markets where they have common links or relationship (Rauch (2001), Combes, Lafourcade, and Mayer (2005) and Chaney (2014)).

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