Financial vulnerability and export dynamics

الملخص EN

This study documents the implications of financial vulnerability for export diversification in developing economies.

Financial crises, by increasing the incidence of sunk costs of entry into exporting, reduce firm export dynamics.

Financially-vulnerable exporters are not able to fully realize economies of scale in production and have little access to more sophisticated technologies.

The number of products and destinations per exporter are therefore likely to decrease in times of crisis.

We use a comprehensive cross-country dataset on export dynamics, with data covering the 1997-2011 period for 34 developing countries, to investigate this issue.

Building on the generalized difference-in-differences procedure proposed in the literature to remove any endogeneity bias, the results point to a negative and economically large effect of financial vulnerability on export diversification.

Financial crises reduce export dynamics disproportionately more in financially dependent industries.

This effect is less pronounced in countries with an initially more open capital account, suggesting that portfolio inflows are good substitutes for underdeveloped domestic financial markets.

JEL Classification: F12, F14, G01, O16