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