Dollar Funding and Firm-Level Exports

How do financial frictions in currency markets affect firm-level exports? We bring new answer to this question by looking at a recent episode in the summer of 2011 when the cost of US dollar funding increased markedly for European banks and their clients. Our analysis relies on a unique dataset of matched banks and exporters located in France. We measure the exposure of individual exporters to the 2011 dollar funding shock using information about their lending banks' crossborder US dollar liabilities before the shock. Controlling for observed and unobserved firm-level factors and product-destination-level demand effects, we find robust evidence that more exposed firms reduced more their exports to the United States in the twelve months that followed the shock. The magnitude of this financial trade cost is equivalent to a counterfactual rise in US tariffs by 2 to 5 percentage points. Finally, we document various transmission channels related to firms' natural hedging, market power, relations with US banks in France or use of financial instruments to hedge.