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Financial Frictions and Export Dynamics

  • Michal Szkup

    (New York University)

  • Fernando Leibovici

    (New York University)

  • David Kohn

    (New York University)

This paper studies the relationship between firm export dynamics and financial constraints in a small open economy model. Robust findings in the literature show that new exporters begin by exporting very small quantities, with most of them exiting the foreign market soon after. However, those that survive expand very rapidly and are much less likely to exit. As reported by Ruhl and Willis (2008a), standard trade models with heterogeneous firms cannot replicate these facts. We add borrowing constraints to an otherwise standard model and calibrate it using microdata on export dynamics. We find that financial constraints can largely account for the decreasing hazard rate and the increasing export volume of new exporters. We then provide empirical evidence supporting this mechanism and study its implications for understanding the effects of a large devaluation on aggregate exports.

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Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 1014.

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Date of creation: 2011
Date of revision:
Handle: RePEc:red:sed011:1014
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

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