Why exports adjust: missing imported inputs or lack of credit?

This paper examines the role of imported intermediate inputs and credit constraints on exports adjustment. For identification, we study an episode of capital controls on outflows that exogenously restricted firms’ ability to pay for imports and the large-scale credit crunch that followed the imposition of controls in Greece in June 2015. Exploiting within-firm variation across sectors, we find that lack of imported inputs explains the drop in exports at the intensive margin, while lack of long-term credit is associated with adjustments at the extensive margin. Multinationals overcome liquidity constraints because of access to parents’ internal funds, but not import constraints because of stronger linkages for specialized inputs abroad. Our findings point to a novel result: the importance of both channels – real and finance – in jointly determining trade adjustment, and the different implications for the margins of trade