Trade Collapse and the Performance of Exporting Firms

How do exporting firms navigate the loss of a major foreign market? This study examines the response of Colombian manufacturing firms to the collapse of trade with Venezuela, Colombia’s second largest trade partner. Trade disruptions began in 2009 when Venezuela restricted imports from Colombia and worsened with Venezuela’s protracted economic crisis after 2014, leading to a fall in trade of more than 90% by 2018. Using transaction-level customs data linked at the firm level to the Colombian manufacturing census, we use a difference-in-difference design based on previous exports to Venezuela to estimate the effect of the loss of this market on firm performance over a ten-year period. Our analysis yields four main findings: (i) affected firms experience a sharp and persistent decline in exports; (ii) while they survive, these firms significantly reduce their scale, lowering production, input use, investment, employment, and wages; (iii) however, traditional measures of total factor productivity remain unchanged, suggesting that firms retain their technical capabilities; (iv) affected firms adapt by increasing exports to familiar markets but fail to expand into new markets or boost domestic sales. These results highlight the resilience of exporting firms but also underscore the persistent difficulties in substituting a major trade partner.