Dissecting the Effect of Credit Supply on Trade: Evidence from Matched Credit-Export Data

In this paper we estimate the elasticity of exports to credit shocks. As a source of variation, we exploit the disproportionate reduction in credit supply by banks with high share of foreign liabilities during the 2008 financial crisis. Using matched customs and firm-level bank credit data from Peru, we compare changes in exports of the same product and to the same destination by firms borrowing from different banks, which allows us to account for variation in non-credit determinants of exports. On the intensive margin, the elasticity of exports to credit is 0.23, and it is relatively constant across firms of different size, industry, and other observable characteristics. We find that both the frequency and average size of shipments are sensitive to credit shocks. On the extensive margin, the elasticity of the number of firms that continue supplying a product-destination export market is 0.36, but credit has no effect on the number of entrants. The estimated elasticities imply that the negative credit supply shock accounts for 15% of the drop in Peruvian exports during the financial crisis.