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

Abstract

We estimate the elasticity of exports to credit using matched customs and firm-level bank credit data from Peru. To account for non-credit determinants of exports, we compare changes in exports of the same product and to the same destination by firms borrowing from banks differentially affected by capital-flow reversals during the 2008 financial crisis. We find that credit shocks affect the intensive margin of exports, but have no significant impact on entry or exit of firms to new product and destination markets. Our results suggest that credit shortages reduce exports through raising the variable cost of production, rather than the cost of financing sunk entry investments. * We are grateful to

Overseas Market Information and Firms' Export Decisions

“…We therefore conjecture that banks play a crucial role in substantially reducing the fixed entry costs incurred by client firms when starting to export. This contrasts with the focus of most of the previous literature on the role of banks, such as the studies by Amiti and Weinstein (2011) and Paravisini et al (2015), which examine the relationship between banks' financial health and their clients' export behavior. To examine this hypothesis, we focus on firms' main bank which, in line with previous studies, we define as the top lender bank of 1.…”

“…While existing studies, such as Koenig et al (2010), concentrate on information spillovers from other exporting firms in the same region and/or industry, this study focuses on the importance of information provided directly by main lender banks through transaction relationships. Conversely, Paravisini et al (2015) suggest that credit frictions, by affecting the cost of working capital, affect the variable costs of exporting and hence the volume of exports. Conversely, Paravisini et al (2015) suggest that credit frictions, by affecting the cost of working capital, affect the variable costs of exporting and hence the volume of exports.…”

International Transmission of the 2007-2009 Financial Crisis: Evidence from Japan

“…Using Peruvian firm‐level data, Paravisini et al . () find that a decline in the supply of credit by domestic banks in response to the reversal in capital flows during the financial crisis had a significant effect on exports. Using a data set on French firms for the financial crisis, Bricongne et al .…”

The Economics of Interfirm Networks

“…Second, another example of a study that succeeds both in taking firm-level heterogeneity into account and employing individually measured financial shocks is that by Paravisini et al (2011), who used Peruvian bank-firm match-level data with customs information about the exported products of each firm and examined whether the reversal of capital flows during the 2008 global financial crisis had a greater adverse impact on both the extensive margin of exports (i.e., the number of firms continuing exports) and the intensive margin of exports (i.e., the volume of exports) for firms that had borrowed more from banks that were more exposed to the financial crisis. To take into account the possible endogeneity of fund supply, they instrumented for the supply of credit to a firm using an exogenous shock (i.e., the reversal of capital flows) affecting the lender bank's balance sheet.…”

“…Paravisini et al (2011) controlled for such fixed effects at the firm-product-destination level to exclude this type of matching mechanism when they estimated the effects of credit supply on firm exports. Suppose that banks specialize in a certain class of firms and that such class of firms happens to be hit by a decline in demand for a certain product or in a country that the firms export to.…”