| dc.description.abstract | Standard theoretical models would predict that a currency depreciation generates an increase in net
exports. However, recent emerging market crises, accompanied by sharp exchange rate devaluation,
have often been followed by a fall in or a stagnation of exports. This paper provides a simple
theoretical framework which shows that a currency crisis affects trade through (i) a competitiveness
effect, i.e. a variation in relative prices, that positively influences the intensive margin of trade (the
amount of exports by firms); (ii) a balance-sheet effect, i.e. a modification of the fixed cost of exports,
which negatively affects the extensive margin of trade (the number of exporters). We derive from our
model a gravity-like equation of bilateral sectoral trade which we estimate using data on 27 industries
and 32 countries over the period 1976-2002. First, we find that these events have a long-lasting
negative impact on exports - which remain below their natural level for five years. We present
evidence suggesting that this persistent effect is due to the combination of firms' foreign currency
borrowing and fixed costs of exports, which leads to important balance-sheet problems in the
aftermath of the crisis. Second, the net effect of crises on exports largely depends on country
specialization: the positive competitiveness effect is magnified by a specialization in high elasticity of
substitution's industries, while negative balance-sheets effects are exacerbated in industries more
dependent upon external finance, in which assets are more tangible, or in high fixed costs sectors. | en |
