The following article was inspired by a paper co-authored by:
Adrien Matray, Harvard University
Karsten Müller, National University of Singapore
Chenzi Xu, University of Berkeley, California
Poorya Kabir, National University of Singapore
In international trade, financing can be the deciding factor for businesses trying to close a deal. This is where Export Credit Agencies (ECAs) come in: these public or semi-public institutions drive exports and support domestic growth by providing crucial trade financing. ECAs operate in over 95 countries and contribute to over 92% of global trade, serving as a key pillar in the global economy. However, their true impact has long been debated by economists and policymakers. Do ECAs genuinely make a difference? And, if so, how significant is their influence?
A 2024 study published by the National Bureau of Economic Research (NBER) provides new insights into these questions, using the case of the Export-Import Bank of the United States (EXIM)’s temporary shutdown as a natural experiment. From 2015 to 2019, EXIM experienced a significant reduction in its capacity, creating an unprecedented opportunity to observe how American businesses fared without this critical source of financing.
Export Credit Agencies and the Role of EXIM
ECAs support trade by closing financing gaps and covering risks inherent in cross-border transactions. Through working capital loans and insurance, they enable companies to export to high-risk markets where private banks might not be willing to lend. EXIM, founded during the New Deal, serves as the U.S. Export Credit Agency. It finances American exports in cases where private financing is unavailable, thereby supporting U.S. jobs and ensuring the country’s global competitiveness.
The 2015 Shutdown: A Natural Experiment
On July 1, 2015, EXIM’s operations were disrupted due to a lapse in its charter, which must be periodically reauthorized by Congress. This disruption was compounded on July 20 when EXIM’s board of directors lost its quorum, rendering the agency unable to conduct many of its operations. Although EXIM’s charter was reinstated in December 2015, the board quorum issue persisted until May 2019. During this period, EXIM’s ability to finance new projects dropped by 84%, leading to significant industry-wide consequences. For researchers, this period offered a rare, data-rich opportunity to measure EXIM’s true economic impact.
The Study’s Approach and Methodology
The study, released as a working paper by the NBER, used a difference-in-differences approach, comparing the performance of firms and products that relied heavily on EXIM financing before the shutdown with those less dependent. This model accounted for various economic shocks, industry cycles, and firm-specific factors to isolate EXIM’s impact. By incorporating customs data at the product and country level, the study observed U.S. exports to specific destinations over time and examined firm-level adaptations, allowing for a rigorous analysis of EXIM’s role in international trade and domestic productivity.
The Ripple Effects: Exports, Investment, and Employment
The study’s findings were stark: EXIM’s exit had a measurable negative effect across U.S. industries. Each $1 reduction in EXIM financing correlated with a $5 decline in U.S. exports, with a 12.5% average reduction in total firm sales and a 14% cutback in investment. Employment in EXIM-dependent firms also fell by around 10%. These numbers illustrate how critical export financing can be—not only for external trade but for sustaining domestic growth, employment, and productivity.
Interestingly, the study found that firms most impacted by the shutdown were those with the highest pre-existing productivity levels. Typically, such firms are best positioned to capitalize on financing for export growth, but without EXIM’s support, they faced severe constraints, losing access to crucial international markets. This finding underscores the unique position of ECAs in supporting high-performing firms that may lack sufficient private financing options.
Why Private Banks Could Not Fill the Gap
The study delves into why private banks could not readily replace EXIM’s support. In the specialized world of export financing, private banks typically offer limited options and prefer low-risk markets, such as those in the EU or China. Private banks face significant challenges in assessing risk and securing collateral in less stable markets, leading to reluctance to provide financing.
“Private banks need recourse if a loan isn’t repaid, usually in the form of collateral,” says Adrien Matray. “In international trade, securing goods as collateral is challenging, and enforcing contracts across borders is complex.”
EXIM’s expertise in managing these risks at a lower cost than private banks made it uniquely capable of supporting U.S. exporters.
Domestic Adaptations and Long-Term Consequences
The NBER study provides a nuanced view of how firms adapted to the export financing vacuum. While EXIM-backed firms saw a drop in exports, some managed to partially offset these losses with increased domestic sales. However, this adaptation was insufficient to fully counteract the effects of the financing loss, with affected firms experiencing a significant contraction in capital investment and hiring. This finding suggests that while domestic market shifts can offer a temporary buffer, they do not replace the broader growth opportunities provided by export financing.
Broader Policy Implications
The study raises questions about the role of ECAs in modern economies. While EXIM’s shutdown revealed the agency’s substantial impact, it also highlighted the complexities of public financing. ECAs like EXIM must balance their roles in supporting exports without unduly distorting market competition or allocating capital inefficiently. The NBER study’s model suggested that, in this case, EXIM financing was likely efficient, as it flowed primarily to firms with high marginal returns on capital, rather than creating capital misallocation risks.
The findings suggest that policymakers should consider the unique challenges of trade financing and the gaps that private banks cannot fill. “Trade financing presents unique challenges that may justify government intervention,” Adrien Matray points out. ECAs can strategically support firms that contribute most to economic growth without undermining private sector competition—a balance that could inspire future public policy innovations.
The EXIM shutdown experiment revealed how essential export credit agencies can be, not only in enhancing trade but in bolstering entire economies. As policymakers debate the future of ECAs, this study underscores the nuanced role they play in a world where private financing alone may fall short. With targeted, efficient support, ECAs can help sustain the firms that drive innovation, employment, and long-term economic stability.
