Access to Finance and the Exchange Rate Sensitivity of Exports

41 Pages Posted: 14 Jan 2025

See all articles by Mi Dai

Mi Dai

Beijing Normal University (BNU)

Francesco Nucci

University of Rome I

Alberto F. Pozzolo

Roma Tre University

Jianwei Xu

Bruegel

Date Written: January 10, 2019

Abstract

The recent empirical literature estimating the elasticity of exports to exchange-rate fluctuations has shown that, while devaluations have in general a positive effect on exports, the size of it varies significantly depending on firm, sector and country characteristics. In this paper we lend theoretical and empirical support to the view that the financial conditions of a firm have a relevant effect on the way in which exchange rate movements affect its export decisions. In particular, we show that exporting activities by more financially constrained firms are more sensitive to exchange rate fluctuations than those by firms with a better ability to raise external capital. This finding is detected at both the intensive and extensive margin of export. Consistent with the result on export quantities, we also document that the exchange rate pass-through to export prices denominated in the domestic currency is lower for firms facing stronger financial constraints. Moreover, we show that our results are robust to controlling for a variety of alternative features that may affect the firm-level elasticity of exports to exchange-rate, such as the intensity of use of imported inputs, labor productivity, the degree of price stickiness and firm size.

Keywords: Exports, Exchange Rate, Financial Constraints

JEL Classification: F14, F31

Suggested Citation

Dai, Mi and Nucci, Francesco and Pozzolo, Alberto F. and Xu, Jianwei, Access to Finance and the Exchange Rate Sensitivity of Exports (January 10, 2019). Centro Studi Luca d'Agliano Development Studies Working Paper No. 442, Available at SSRN: https://ssrn.com/abstract=5096801 or http://dx.doi.org/10.2139/ssrn.5096801

Mi Dai (Contact Author)

Beijing Normal University (BNU) ( email )

19 Xinjiekou Outer St
Haidian District
Beijing, Beijing 100875
China

Francesco Nucci

University of Rome I ( email )

Piazzale Aldo Moro
Rome, 00185
Italy
+39 06 4991 0847 (Phone)
+39 06 445 3246 (Fax)

Alberto F. Pozzolo

Roma Tre University ( email )

Via Ostiense 163
Roma, RM 00154
Italy

HOME PAGE: http://www.uniroma3.it/

Jianwei Xu

Bruegel ( email )

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