Credit Constraints, High Fixed Costs and the Asian Currency Crisis: Firm Level Evidence from Thailand
26 Pages Posted: 16 Aug 2005
Date Written: May 2005
This paper examines the relative roles of financial constraints and average cost behavior in depressing output during the 1997 currency crisis in Thailand. We analyzed Thai firm level data between 1996-2000, and found robust evidence of decreasing short-run average costs. Taking the median estimate, a 50 percent decline in output raises average costs by 8-9 percent. We attribute the decreasing short-run average costs to high fixed costs of productions, such as high capital, labor and land costs that do not vary with output. We also found evidence that the crisis-induced deterioration in firm financial characteristics significantly raised the borrowing costs of Thai firms.
Keywords: Thai currency crisis, financing constraints, over-investment, credit constraints
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