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Liquidity Constrained Exporters

  • 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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Paper provided by Society for Economic Dynamics in its series 2007 Meeting Papers with number 979.

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Date of creation: 2007
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Handle: RePEc:red:sed007:979
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  1. Bengt Holmstrom & Jean Tirole, 1994. "Financial Intermediation, Loanable Funds and the Real Sector," Working papers 95-1, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Aw, B. -Y. & Hwang, A. R., 1995. "Productivity and the export market: A firm-level analysis," Journal of Development Economics, Elsevier, vol. 47(2), pages 313-332, August.
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  5. Bernanke, Ben & Gertler, Mark, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Working Papers 95-15, C.V. Starr Center for Applied Economics, New York University.
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  7. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and Productivity in International Trade," Boston University - Institute for Economic Development 105, Boston University, Institute for Economic Development.
  8. J Bradford Jensen & Andrew B Bernard, 2001. "Why Some Firms Export," Working Papers 01-05, Center for Economic Studies, U.S. Census Bureau.
  9. Andrew B. Bernard & J. Bradford Jensen, 2001. "Who Dies? International Trade, Market Structure, and Industrial Restructuring," NBER Working Papers 8327, National Bureau of Economic Research, Inc.
  10. Mark Gertler & Simon Gilchrist, 1993. "Monetary policy, business cycles and the behavior of small manufacturing firms," Finance and Economics Discussion Series 93-4, Board of Governors of the Federal Reserve System (U.S.).
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