Industrial Policy and Capital Misallocation in Exporting

Poorya Kabir (), Adrien Matray (), Karsten Müller () and Chenzi Xu ()
Additional contact information
Poorya Kabir: https://discovery.nus.edu.sg/18110-poorya-kabir
Adrien Matray: https://www.atlantafed.org/who-we-are/people/research/economists/adrien-matray
Chenzi Xu: https://econ.berkeley.edu/profile/chenzi-xu

No 2026-12, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: Trade financing through export credit agencies is a key tool of modern industrial policy. We provide a theory to evaluate its welfare effects, and we study its causal impact on trade, firm investment, and capital misallocation by using the effective shutdown of the US export credit agency from 2015 to 2019 as a natural experiment. First, we show that the US Export-Import Bank (EXIM) has large causal effects: comparing industries exposed and unexposed to the shutdown, we find that exposed industries experience a product-level export reduction of approximately $4.49 for each $1 lost in EXIM financing. EXIM-dependent firms also experience substantial contractions in revenues, investment, and employment. Second, shutting down EXIM increases capital misallocation because firms with high marginal revenue product of capital (MRPK) disproportionately contract while low-MRPK firms are largely unaffected. Terms-of-trade adjustments and freeing capital for domestic producers do not appear to offset these losses empirically. Our results indicate that even in advanced economies with developed financial markets, industrial policy that lowers financing constraints for exporters can raise output, improve capital allocation, and generate welfare gains.

Keywords: export credit agencies; industrial policy; trade finance; capital misallocation; financing constraints; exports; firm investment (search for similar items in EconPapers)
JEL-codes: D24 E22 F13 F14 G28 G32 H81 L52 (search for similar items in EconPapers)
Pages: 76
Date: 2026-08-24
New Economics Papers: this item is included in nep-mac
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DOI: 10.29338/wp2026-12

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