Working Paper: CEPR ID: DP8543
Authors: Sebnem Kalemli-Ozcan; Herman Kamil; Carolina Villegas-Sanchez
Abstract: We provide evidence on the real effects of credit supply shocks utilizing a new firm-level database from six Latin American countries between 1990 to 2005. Holding creditworthiness constant through foreign currency debt exposure, we compare investment undertaken by domestic exporters to that of foreign-owned exporters, where the latter's exposure to the liquidity shock is lower. We find that foreign-owned exporters increase investment by 15 percentage points relative to domestic exporters only when the currency crisis occurs simultaneously with a banking crisis. These findings suggest that the key factor hindering investment during financial crises is the decline in credit supply.
Keywords: bank lending; exports; foreign ownership; growth; short-term dollar debt; twin crisis
JEL Codes: E32; F15; F36; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| twin crises (H12) | investment by foreign-owned exporters (F23) |
| twin crises (H12) | credit crunch for domestic exporters (F14) |
| currency crises (F31) | investment behavior of exporters (F23) |
| twin crises (H12) | investment opportunities for domestic exporters (F10) |
| banking system's collapse (F65) | currency crisis (F31) |
| liquidity constraints (E41) | investment (G31) |