Lessons from the Asian Crisis: An Open Economy Credit Channel Model where Export Status Matters

There are some surprising parallels between the 1997-8 Asian crisis and the recent financial crisis that provide lessons for policymakers. This paper provides a theoretical model of an open economy credit channel including currency mismatch and financial fragility where exporting firms have access to international credit but non-exporting firms do not. We propose three channels through which exporters and non-exporters are affected by the crisis. We test and confirm the predictions of the model on a panel of Korean firms over the sample 1990–2006. As our model predicts, exporters are more likely to obtain foreign currency loans and experience significantly higher sales after the crisis compared to non-exporters.