Firms Dynamics of Exports and Credit

We propose a model that can account for both the dynamics of the firm's exports and debt stock along its life cycle, and the short-term responses of large and small exporters to credit shocks. In our model, the demand for external credit results from two different motives: i) to finance fixed investment, i.e., to increase the fixed capital stock or to pay upfront costs to enter new export markets, and ii) to finance short-term working capital, i.e., wages or inputs. Early in the life of the firm most credit is used for the expansion of the capital stock and the number of export markets. For large and established firms, on the other hand, external credit is mostly used to finance working capital. In our model, the impact of a credit shock on exports varies across firms, depending on their age and size. In the short term, most of the effect of a credit shock on aggregate exports is explained by the drop in the intensive margin of trade by large firms. However, a permanent change in credit conditions affects the steady state number and size of exporters. We calibrate this model to match our data parameters and perform different counterfactual simulations.