Access to Finance and the Exchange Rate Sensitivity of Exports

The recent empirical literature estimating the elasticity of exports to exchange-rate fluctuations has shown that, while devaluations have in general a positive effect on exports, the size of it varies significantly depending on firm, sector and country characteristics. In this paper we lend theoretical and empirical support to the view that the financial conditions of a firm have a relevant effect on the way in which exchange rate movements affect its export decisions. In particular, we show that exporting activities by more financially constrained firms are more sensitive to exchange rate fluctuations than those by firms with a better ability to raise external capital. This finding is detected at both the intensive and extensive margin of export. Consistent with the result on export quantities, we also document that the exchange rate pass-through to export prices denominated in the domestic currency is lower for firms facing stronger financial constraints. Moreover, we show that our results are robust to controlling for a variety of alternative features that may affect the firm-level elasticity of exports to exchange-rate, such as the intensity of use of imported inputs, labor productivity, the degree of price stickiness and firm size.