The role of finance for export dynamics: evidence from the UK

Aydan Dogan and Ida Hjortsoe

No 1072, Bank of England working papers from Bank of England

Abstract: Through what channels do fluctuations in the financial costs of exporting affect exports, and how important are financial conditions for export dynamics over the business cycle? We first establish, using balance sheet data for UK manufacturing firms, that exporting firms have more short-term liabilities than non-exporting firms. We find evidence consistent with exporting firms taking on these short-term loans to (partly) cover labour costs. We then build a model with heterogeneous firms in which exporters need to access external finance to export, in line with the evidence, and parameterise it to UK data. We use rich firm level data to inform the calibration of the financial costs facing exporting firms, and estimate the shock processes in our model with Bayesian methods. Our estimations show that global shocks to the financial costs of exporting are the main driver of UK export dynamics over the business cycle, alongside shocks to productivity. These two shocks each contribute to around a third of UK export dynamics. Moreover, we find that global shocks to the financial costs of exporting played a crucial role in explaining the fall in UK exports in the early stages of the Global Trade Collapse, and slowed the recovery.

Keywords: Open economy macroeconomics; small open economy; exports; trade finance; heterogeneous firms (search for similar items in EconPapers)
JEL-codes: F41 F44 F47 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2024-08-05
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-fdg, nep-int, nep-opm and nep-sbm
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Working Paper: The Role of Finance for Export Dynamics: Evidence from the UK (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:1072

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