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

Abstract

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 document sizable real effects of the shutdown: a $1 reduction in EXIM trade financing reduces exports by approximately $4.50. EXIM-dependent firms also experience a contraction in total revenues, investment, and employment. EXIM's shutdown has the largest effects for exporters facing financing frictions and selling to markets with high contractual frictions, indicating that even in well-developed financial markets, trade financing can be under-supplied by private banks. Consistent with the idea that EXIM support can help to address market frictions, we find that the shutdown increased capital misallocation, as firms with a higher ex-ante marginal revenue product of capital contracted more. 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. Joint paper with Karsten Müller, Chenzi Xu and Poorya Kabir.