Exporter and Non-Exporter Exposure to Credit Shocks in an Open Economy Credit Channel Model: Some Evidence from Korea

Abstract

This paper demonstrates that exporting firms suffer less from negative credit shocks in a financial crisis than non-exporting firms because they have access to foreign revenue streams which
continue to have value as collateral to foreign banks. We present a simple model of an open
economy credit channel where exporting firms have access to international credit but non-
exporting firms do not. We then introduce a currency crisis, and observe two channels – a cost
and a competitiveness channel – through which exporters and non-exporters are affected by the
crisis. Our findings are confirmed empirically in a panel of firm-level data for Korea.

Keywords: open economy credit channel, exports, bank lending, Asian crisis

JEL Classification: E44, E51, F34, F41, G21, L25