Financial Market Imperfections and the impact of exchange rate movements on exports

This paper studies the role of financial market imperfections in the way countries' exports react to a currency depreciation. Using quarterly data for 27 developed and developing countries over the period 1990-2005, we show that the impact of a depreciation will be less positive - or even negative - for a country as: (i) firms borrow in foreign currency ; (ii) they are credit constrained ; (iii) they are specialized in industries that require more external capital; (iv) the depreciation's or devaluation's magnitude is large. This last result confirms the existence of a non-linear relationship between an exchange rate depreciation and a country's exports reaction when financial imperfections are observed. This work offers a new explanation for the consequences of recent currency crises in middle income countries.International Trade,Exchange Rate Movements,Financial Development,Financial Market Imperfections

Financial market imperfections and the impact of exchange rate movements

This paper analyses empirically the role of financial market imperfections in the way countries' exports react to a currency depreciation. Using quarterly data for 27 developed and developing countries over the period 1990-2005, we find that the impact of a depreciation on exports will be less positive - or even negative - for a country if : (i) firms borrow in foreign currency ; (ii) they are credit constrained ; (iii) they are specialized in industries that require more external capital ; (iv) the magnitude of depreciation or devaluation is large. This last result emphasizes the existence of a non-linear relationship between an exchange rate depreciation and the reaction of a country's exports when financial imperfections are observed. This offers a new explanation for the consequences of recent currency crises in middle income countries.International trade, exchange rate movements, balance-sheets effects, financial market imperfections.

Export dynamics and sales at home

How do firms' sales interact across markets? Are foreign and domestic sales complements or substitutes? Using a large French firm-level database that combine balance-sheet and product-destination-specific export information over the period 1995-2001, we study the interconnections between exports and domestic sales. We identify exogenous shocks that affect firm demand on foreign markets to instrument yearly variations in exports. Our results show that exogenous variations in foreign sales are positively associated with domestic sales, even after controlling for changes in domestic demand. A 10% exogenous increase in exports generates a 1.5 to 3% increase in domestic sales in the short-term. This result is robust to various estimation techniques, instruments, controls, and sub-samples. It is also supported by the natural experiment of the Asian crisis in the late 1990's. We discuss various channels that may explain this complementarity.Export dynamics, domestic sales, liquidity

Exchange rate movements, firm-level exports and heterogeneity. National Bank of Belgium Working Paper No. 334

This paper provides an estimation of the reaction of firm-level exports consecutive to real exchange rate movements – the exchange rate elasticity of exports. Following recent theoretical works emphasizing the role played by firm heterogeneity, we test in particular how the exchange rate elasticity may be affected by firm-level productivity, and how the heterogeneous reaction of different firms may contribute to shape the aggregate reaction of countries’ exports. The analysis relies on a unique cross-country micro-based dataset of exporters available for 11 European countries (2001-2011), which details in particular information about firms’ productivity and export performance. Our results show that while the average exchange rate elasticity across firms is quite weak, it is also highly heterogeneous. The least productive firms within each country and sector tend to react more to real exchange rate movements than the most productive firms. This weak reaction of highly productive and large exporters tends to reduce the macroeconomic exchange rate elasticity in all countries. Cross-country differences in the shape of the productivity distribution among exporters have a strong influence on the macroeconomic exchange rate elasticity: countries populated with a higher density of low productive firms tend to respond more to exchange rate movements in terms of aggregate exports than countries populated with highly productive exporters

Financial market imperfections and the impact of exchange rate movements

URL des Cahiers : https://halshs.archives-ouvertes.fr/CAHIERS-MSECahiers de la Maison des Sciences Economiques 2006.55 - ISSN 1624-0340This paper analyses empirically the role of financial market imperfections in the way countries' exports react to a currency depreciation. Using quarterly data for 27 developed and developing countries over the period 1990-2005, we find that the impact of a depreciation on exports will be less positive - or even negative - for a country if: (i) firms borrow in foreign currency; (ii) they are credit constrained; (iii) they are specialized in industries that require more external capital; (iv) the magnitude of depreciation or devaluation is large. This last result emphasizes the existence of a non-linear relationship between an exchange rate depreciation and the reaction of a country's exports when financial imperfections are observed. This offers a new explanation for the consequences of recent currency crises in middle income countries.Cet article s'intéresse à la manière dont les imperfections de marché financier peuvent modifier la réaction des exporatations d'un pays lors d'une dépréciation du taux de change. Nous montrons, à l'aide de données trimestrielles pour 27 pays durant la période 1990-2005, que la réaction du volume d'exportation consécutive à une dépréciation sera d'autant moins positive que (i) les firmes domestiques empruntent en monnaie étrangère, (ii) il existe des contraintes de crédit, (iii) les exportateurs sont spécialisés dans des productions nécessitant l'utilisation de davantage de capital externe, (iv) l'ampleur de la dépréciation est importante. Ce dernier élément nous permet de confirmer l'existence d'une relation non linéaire entre dépréciation de la monnaie domestique et réaction des exportations, compte tenu des imperfections de marché financier. Ce travail propose en particulier une nouvelle approche permettant de mieux comprendre la faible réaction des exportations dans les économies émergentes

Export dynamics and sales at home

How do rms' sales interact across markets? Are foreign and domestic sales complements or substitutes? Using a large French rm-level database that combine balance-sheet and product-destination-speci c export information over the period 1995-2001, we study the interconnections between exports and domestic sales. We identify exogenous shocks that a ect rm demand on foreign markets to instrument yearly variations in exports. Our results show that exogenous variations in foreign sales are positively associated with domestic sales, even after controlling for changes in domestic demand. A 10% exogenous increase in exports generates a 1.5 to 3% increase in domestic sales in the short-term. This result is robust to various esti-mation techniques, instruments, controls, and sub-samples. It is also supported by the natural experiment of the Asian crisis in the late 1990's. We discuss various channels that may explain this complementarity

The "Collapse in Quality" Hypothesis

This paper evaluates the hypothesis that during the 2008-2009 collapse in international trade, imports of higher quality goods experienced larger reductions compared to low-quality imports, using data on US imports disaggregated by HS-10 product category and source country. We find little, if any, robust econometric evidence in support of this hypothesis.

Trade, productivity and (mis)allocation

We examine the gains from globalization in the presence of firm heterogeneity and potential resource misallocation. We show theoretically that without distortions, bilateral and export liberalizations increase aggregate welfare and productivity, while import liberalization has ambiguous effects. Resource misallocation can either amplify, dampen or reverse the gains from trade. Using model-consistent measures and unique new data on 14 European countries and 20 industries in 1998-2011, we empirically establish that exogenous shocks to export demand and import competition both generate large aggregate productivity gains. Guided by theory, we provide evidence consistent with these effects operating through reallocations across firms in the presence of distortions: (i) Both export and import expansion increase average firm productivity, but the former also shifts activity towards more productive firms, while the latter acts in reverse. (ii) Both export and import exposure raise the productivity threshold for survival, but this cut-off is not a sufficient statistic for aggregate productivity. (iii) Efficient institutions, factor and product markets amplify the gains from import competition but dampen those from export access

Assessing the macroeconomic impact of Brexit through trade and migration channels

Este trabajo conjunto de Bundesbank, Banque de France y Banco de España analiza en detalle algunos de los numerosos canales a través de los cuales el brexit afectará a la economía del Reino Unido y a la de sus socios comerciales. En particular, se centra en los canales comercial y migratorio, haciendo una evaluación más general de los costes de la salida de la UE utilizando un modelo de gravedad. El canal comercial por sí solo puede reducir el PIB del Reino Unido un 2 % a medio plazo si el Reino Unido vuelve a las reglas de la OMC, mientras que un modelo de gravedad más general apuntaría a que el PIB del Reino Unido se reduciría casi un 6 % en comparación con el escenario de no salida. Por lo tanto, de acuerdo con nuestro análisis, el «coste de estar fuera de Europa» (como se estableció originalmente en el trabajo seminal de Cecchini en 1988) se encuentra entre el 2 % y el 6 % en términos de pérdidas del PIB real para el Reino Unido. Este impacto es en gran medida asimétrico, ya que el PIB de la zona del euro no se ve prácticamente afectado por este evento, al situarse menos de un 1 % por debajo del escenario de no salida en 2023. El estudio también pone de manifiesto cómo los resultados son sensibles a la reacción de las políticas económicas. En general, las políticas monetarias y fiscales pueden actuar para amortiguar el shock del brexitsin embargo, su efectividad depende de la fuente subyacente de la perturbaciónThis joint work by the Bundesbank, the Banque de France and the Banco de España highlights some of the numerous channels through which Brexit will affect the UK economy and its economic partners. In particular, it focuses on trade and migration channels, adding a more general assessment of exiting the EU through the use of a gravity model. The trade channel alone may cut UK GDP by 2% over the medium term if the UK reverts to WTO rules, while a more general gravity model would point to UK GDP falling by almost 6% compared to baseline. According to our analysis, the ‘cost of non-Europe’ (such as originally stated by Cecchini’s seminal work in 1988) lies therefore between 2% and 6% in terms of real GDP losses for the UK. With the shock being largely asymmetric, the EA remains relatively unscathed by the UK’s exit, with GDP less than 1% lower than baseline by 2023. The study also shows that results are sensitive to the envisaged policy response. In general, monetary and fiscal policies may act to cushion a Brexit-related shockhowever, the potency of the policy response depends on the underlying source of the shoc

Assessing European firms’ exports and productivity distributions: The CompNet trade module. National Bank of Belgium Working Paper No. 282

This paper provides a new cross-country evaluation of competitiveness, focusing on the linkages between productivity and export performance among European economies. We use the information compiled in the Trade module of CompNet to establish new stylized facts regarding the joint distributions of the firm-level exports performance and productivity in a panel of 15 countries, 23 manufacturing sectors during the 2000’s. We confirm that exporters are more productive than nonexporters. However, this productivity premium is rising with the export experience of firms, with permanent exporters being much more productive than starters. At the intensive margin, we show that both the level and the growth of firm-level exports rise with firm productivity, and that the bulk of aggregate exports in each country are made by a small number of highly productive firms. Finally, we show that during the crisis, the growth of exports by high productive firms sustained the current account adjustment of European “stressed” economies. This last result confirms that the shape of the productivity distribution within each country can have important consequences from the point of view of the dynamics of aggregate trade patterns