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Liquidity Constrained Exporters

Listed author(s):
  • Thomas Chaney

    (University of Chicago and NBER)

I build a model of international trade with liquidity constraints. If firms must pay some entry cost in order to access foreign markets, and if they face liquidity constraints to finance these costs, only those firms that have sufficient liquidity are able to export. A set of firms could profitably export, but they are prevented from doing so because they lack sufficient liquidity. More productive that generate large liquidity from their domestic sales, and wealthier firms that inherit liquidity, are more likely to export. This model predicts that the scarcer the available liquidity and the more unequal the distribution of liquidity among firms, the lower are total exports. I also offer a potential explanation for the apparent lack of response of exports in response to exchange rate fluctuations. When the exchange rate appreciates, existing exporters lose competitiveness abroad, and are forced to reduce their exports. At the same time, the value of domestic assets owned by potential exporters increases. Some liquidity constrained exporters start exporting. This dampens the negative competitiveness impact of a currency appreciation. Under some circumstance, it may actually reverse it altogether and increase aggregate exports. This model provides some argument for a competitive revaluation.

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File URL: https://economicdynamics.org/meetpapers/2007/paper_979.pdf
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Paper provided by Society for Economic Dynamics in its series 2007 Meeting Papers with number 979.

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Date of creation: 2007
Handle: RePEc:red:sed007:979
Contact details of provider: Postal:
Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
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