This paper estimates the causal effect of public financing support on exports using alarge and plausibly exogenous shock to the supply of export financing support due to the shutdown of the U.S. Export-Import (ExIm) Bank in 2015. I utilize this unique quasi-experiment together with the synthetic control method to estimate that the average affected industry experienced a reduction in exports by 2.2%, or 56 cents per dollar of lost support. While these results suggest that support by the ExIm bank can be an effective policy tool to relax financing constraints and promote exports, the observed allocation of financing support across industries may be suboptimal as more efficient targeting could create an additional 66,000 export-related jobs per year.
The Effect of Credit Constraints on Trade in a Quantitative General Equilibrium Model
I introduce financial frictions, modeled as a collateral constraint for exporters, into a heterogeneous firm model of international trade. My analysis shows that collateral constraints reduce trade and welfare, while financial development increases exports. Financial frictions are also able to explain the imperfect correlation between productivity and exporting status usually observed in the data. Using country-level proxies for financial constraints and financial development, reduced form empirical evidence confirms key predictions of the structural model.
Note: Welfare, measured as real wage (w/P), increases with higher financial development (A) and lower financial frictions (δ).