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Financial Frictions and Export Dynamics in Large Devaluations

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Abstract

We study the role of financial frictions and balance-sheet effects in accounting for the dynamics of aggregate exports in large devaluations. We investigate a small open economy with heterogeneous firms and endogenous export decisions in which firms face financing constraints and debt can be denominated in foreign units. Despite the negative impact of these channels on capital accumulation and output at the firm-level, we find that they only explain a modest fraction of the gradual increase of exports observed in these episodes. Exports increase since financially-constrained exporters are able to reallocate sales across markets. We show analytically the role of this mechanism on exports adjustment and document its importance using plant-level data.

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  • David Kohn & Fernando Leibovici & Michal Szkup, 2017. "Financial Frictions and Export Dynamics in Large Devaluations," Working Papers 2017-13, Federal Reserve Bank of St. Louis.
  • Handle: RePEc:fip:fedlwp:2017-013
    DOI: 10.20955/wp.2017.013
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    Cited by:

    1. Laura Alfaro & Alejandro Cuñat & Harald Fadinger & Yanping Liu, 2017. "The Real Exchange Rate, Innovation and Asymmetries and Hysteresis," Harvard Business School Working Papers 18-044, Harvard Business School, revised May 2018.
    2. Alfaro, Laura & Cunat, Alejandro & Liu, Yanping & Fadinger, Harald, 2018. "The real exchange rate, innovation and productivity : regional heterogeneity, asymmetries and hysteresis," Working Papers 18-05, University of Mannheim, Department of Economics.
    3. Doungdao Mahakitsiri & Wisarut Suwanprasert, 2020. "Understanding the Bimodality of the Export Intensity Distribution in Thailand," PIER Discussion Papers 139, Puey Ungphakorn Institute for Economic Research.
    4. David Kohn & Fernando Leibovici & Michal Szkup, 2019. "Financial Development and Trade Liberalization," 2019 Meeting Papers 1212, Society for Economic Dynamics.
    5. Alessandria, George & Avila, Oscar, 2020. "Trade Integration in Colombia: A Dynamic General Equilibrium Study with New Exporter Dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 115(C).
    6. Fabrice Defever & Alejandro Riano, 2017. "Twin peaks," Discussion Papers 2017-15, University of Nottingham, GEP.
    7. Bernabe Lopez-Martin, 2019. "Firm Export Dynamics and the Exchange Rate: A Quantitative Exploration," Working Papers 2019-05, Banco de México.
    8. Friederike Niepmann & Tim Schmidt-Eisenlohr, 2017. "Foreign Currency Loans and Credit Risk: Evidence from U.S. Banks," CESifo Working Paper Series 6700, CESifo.
    9. Stefan Avdjiev & Valentina Bruno & Catherine Koch & Hyun Song Shin, 2019. "The Dollar Exchange Rate as a Global Risk Factor: Evidence from Investment," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 67(1), pages 151-173, March.
    10. Malinen Tuomas & Nyberg Peter & Koskenkylä Heikki & Miettinen Sami & Ala-Peijari Jukka & Törnqvist Stefan & Berghäll Elina & Mellin Ilkka, 2018. "How to Leave the Eurozone: The Case of Finland," The Economists' Voice, De Gruyter, vol. 15(1), pages 1-16, December.
    11. Kohn, David & Leibovici, Fernando & Szkup, Michal, 2017. "Financial Frictions, Trade, and Misallocation," Research Department working papers 1106, CAF Development Bank Of Latinamerica.
    12. Janiak, Alexandre & Machado, Caio & Turén, Javier, 2021. "Covid-19 contagion, economic activity and business reopening protocols," Journal of Economic Behavior & Organization, Elsevier, vol. 182(C), pages 264-284.
    13. Jin, Jing & Liao, Rose C. & Loureiro, Gilberto, 2021. "The diverse effects of currency crises on multinational and local firms: The use of foreign currency debt," Journal of Multinational Financial Management, Elsevier, vol. 62(C).
    14. Jonas C. Crews & Fernando Leibovici, 2018. "Trade Adjusts Gradually After Trade Liberalization," Economic Synopses, Federal Reserve Bank of St. Louis, issue 1, pages 1-2.
    15. Camila Casas & Sergii Meleshchuk & Yannick Timmer, 2020. "The Dominant Currency Financing Channel of External Adjustment," Borradores de Economia 1111, Banco de la Republica de Colombia.
    16. Dong Cheng & Zhongzhong Hu & Yong Tan, 2021. "Heterogeneous impacts of finance on firm exports: Evidence from export deregulation in a large developing country," The World Economy, Wiley Blackwell, vol. 44(11), pages 3326-3350, November.
    17. Bank for International Settlements, 2021. "Changing patterns of capital flows," CGFS Papers, Bank for International Settlements, number 66.
    18. Xu, Yuan & Guo, Yuwei, 2021. "Exchange rate disconnect and financial constraints —evidence from Chinese firms," Journal of Comparative Economics, Elsevier, vol. 49(4), pages 1008-1019.
    19. Juan Esteban Carranza & Camila Casas & Alejandra Ximena González-Ramírez, 2020. "The Colombian peso depreciation of 2014-2015 and the adjustment of trade in the manufacturing sector," Borradores de Economia 1125, Banco de la Republica de Colombia.
    20. Alfaro, Laura & Cunat, Alejandro & Fadinger, Harald & Yanping, Liu, 2017. "The real exchange rate, innovation and productivity," Working Papers 17-04, University of Mannheim, Department of Economics.

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    Keywords

    Financial frictions; large devaluations; export dynamics; balance-sheet effects;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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