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EXIM’s Exit: The Real Effects of Trade Financing by Export Credit Agencies

Author

Listed:
  • Adrien Matray
  • Karsten Müller
  • Chenzi Xu
  • Poorya Kabir

Abstract

We study the role of Export Credit Agencies—the predominant tool of industrial policy—on firm behavior by using the effective shutdown of the Export-Import Bank of the United States (EXIM) from 2015-2019 as a natural experiment. We show that a 1% reduction in EXIM trade financing reduces exports in an industry by approximately 5%. The impact on firms' total revenues implies that the export shock has positive pass-through to domestic sales, and firms contract investment and employment. These negative effects for the average firm are amplified by increased capital misallocation across firms as those with higher ex-ante marginal revenue product of capital contract more. We model the effect of EXIM trade financing as lowering two types of input cost wedges: an exporting firm's financing friction, and an importer market friction. We show that both frictions are empirically relevant, indicating that even in well-developed financial markets, the supply of trade financing is plausibly constrained. These results provide a framework for the conditions under which Export Credit Agencies can boost exports and firm growth, and can act as a tool of industrial policy without necessarily leading to a misallocation of resources.

Suggested Citation

  • Adrien Matray & Karsten Müller & Chenzi Xu & Poorya Kabir, 2024. "EXIM’s Exit: The Real Effects of Trade Financing by Export Credit Agencies," NBER Working Papers 32019, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32019
    Note: ITI
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    Cited by:

    1. Lottie Field, 2024. "The political economy of industrial development organisations: are they run by politicians or bureaucrats?," Economics Series Working Papers 1055, University of Oxford, Department of Economics.

    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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