Do Subsidized Export Credits Affect Firms’ Behavior in the FX Market? Micro Evidence from Türkiye

Exports have direct and indirect contributions to growth and welfare; therefore, countries have been implementing various policies to boost exports. Among these policies, export credit remains an important policy instrument. Through its export-led growth strategy, Türkiye intends to increase its exports by subsidizing exporters via a rediscount credit scheme, a form of subsidized export credit, that is mostly financed by the Central Bank of the Republic of Türkiye (CBRT). In this paper, we aim to answer whether benefiting from such cost-effective financial support causes unintended consequences. We focus on the foreign exchange (FX) purchases of treated firms and estimate whether they purchase more FX than their non-treated pairs during the treatment period. Using firm-level data, we employ a propensity score matching (PSM) difference-in-differences (DD) estimator. Focusing only on firms that used rediscount credit for the first time after June 2020, we find evidence of positive and significant impact of using rediscount credits on the treated firms’ net FX purchases. However, this impact significantly diminishes after the CBRT regulations on the conditions for allocation and repayment of rediscount credits came into effect. We also find that being net importer increases the sensitivity of net FX purchase to using rediscount credit. We show that the effect of using rediscount credits on net FX purchase is higher in SMEs than in large firms. Our results suggest that directing rediscount credits from net importers to net exporters and preventing unintended uses through efficient regulations may increase the positive contribution of rediscount credit programs to financial stability.