Dissecting the Effect of Credit Supply on Trade : Evidence from Matched Credit-Export Data

We estimate the elasticity of exports to credit using matched customs and firm-level bank credit data from Peru. To account for non-credit determinants of exports, we compare changes in exports of the same product and to the same destination by firms borrowing from banks differentially affected by capital flow reversals during the 2008 financial crisis. We obtain elasticity estimates for the intensive and extensive margins of exports, size and frequency of shipments, and the method of freight and payment. Our results suggest that the credit shortage reduces exports through raising the variable cost of production, rather than the cost of financing sunk entry investments