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.

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