Liquidity constrained exporters

Thomas Chaney

Journal of Economic Dynamics and Control, 2016, vol. 72, issue C, 141-154

Abstract: I propose a model of international trade with liquidity constraints. If firms must pay a fixed entry cost in order to access foreign markets, and if they face liquidity constraints to finance these costs, only those firms that have sufficient liquidity are able to export. A set of firms could profitably export, but are prevented from doing so because they lack sufficient liquidity. More productive firms that generate large liquidity from their domestic sales, and wealthier firms that inherit a large amount of liquidity, are more likely to export. This model offers a potential explanation for the apparent lack of sensitivity of exports to exchange rate fluctuations. When the exchange rate appreciates, existing exporters lose competitiveness abroad, and are forced to reduce their exports. At the same time, the value of domestic assets owned by potential exporters increases. Some liquidity constrained exporters start exporting. This dampens the anti-competitiveness impact of a currency appreciation. Under some conditions, it may reverse it altogether and increase aggregate exports. In this sense, the model is able to rationalize the co-existence of competitive devaluations and competitive revaluations.

Keywords: International trade; Liquidity constraint; Heterogeneous firms (search for similar items in EconPapers)
JEL-codes: F1 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (185)

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Related works:
Working Paper: Liquidity Constrained Exporters (2016)
Working Paper: Liquidity Constrained Exporters (2016)
Working Paper: Liquidity Constrained Exporters (2013)
Working Paper: Liquidity Constrained Exporters (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:72:y:2016:i:c:p:141-154

DOI: 10.1016/j.jedc.2016.03.010

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