Essays in Trade and Finance

da Costa Monteiro, Joao Miguel

doi:https://doi.org/10.21985/n2-zmrq-re95

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Essays in Trade and Finance

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How do exporting firms react to changes in the cost of credit? To answer this question, we exploit an exogenous variation in banking regulation which increases the cost of financ- ing for exports in the European Union. Using a unique dataset which combines customs, firm-level, and credit registry data on Portuguese firms we find that in response to an increase in the cost of credit, exports fall by 10 percent through the intensive margin. In the extensive margin, we also show that there is a sharp drop in entry as well as an in- crease in firm exit. Within a firm, we document that firms reduce their dependence on bank credit by adjusting their product mix, as firms shift towards products with a low dependence on working capital and bank credit. We also provide direct evidence of the mechanism through which the change in banking regulation operates. We find that loan rates for exporting firms increase and that loan amounts fall by 7 percent. We then turn to aggregate trade data for all E.U. countries. We find that there is an overall decline in exports, but that this decline is driven by countries with undercapitalized banks or where bank equity is scarce. This finding suggests that the health of the banking system is an important determinant of how exports react to an increase in the cost of credit. Using a multi-sector Ricardian model, we show that welfare in E.U. countries declines due to a depreciation in terms of trade. Welfare in countries which import goods from the E.U. also declines.We explore an exogenous shock that affected the ability of the Export-Import Bank of the United States (EXIM) to provide aid to U.S. exporters through loan guarantees to im- porters. We focus on Boeing, the largest individual recipient of aid. We find that Boeing sales declined only modestly – despite Boeing’s significant reliance on EXIM for export credit. Moreover, we find that this decline is driven by financially constrained airlines or by airlines operating in countries with under-developed financial systems. Moreover, airlines in countries with under-developed financial systems also buy fewer aircraft as a result of the EXIM shock. We find that airlines in developed countries were able to easily substitute EXIM guaranteed loans for private credit and thus could still purchase Boeing aircraft despite the EXIM shock. Our results are consistent with the view that government-sponsored export credit is mostly relevant for importers in countries with under-developed financial systems. Our results suggest that the Export-Import Bank of the United States effectively subsidizes airlines in low-income countries with less devel- oped credit markets. In this paper, I consider the effects of tariffs on Russian imports imposed by a coalition of countries. I find that a 10 percentage point increase in tariffs is enough to yield large drops in Russian exports to coalition countries which are not offset by an increase in Rus- sian exports to other countries. This increase in tariffs also leads to a recession in Russia, with a drop in nominal wages and factor prices. Tariffs lead to a drop in Russian welfare, which is mostly driven by a worsening of Russian terms-of-trade as the price of Russian exports falls. There are no discernible welfare losses for coalition countries. I also show that imposing a higher cost of exports to Russia leads to larger drops in Russian welfare, at the cost of more significant welfare losses for coalition countries. Therefore, coalition countries face a trade-off between maximizing welfare losses for Russian and minimizing welfare losses at home.

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