Are Exporters Naturally Hedged? Corporate Dollar Debt and Global Trade

Abstract

We study how dollar-denominated debt and firm heterogeneity affect exchange rate pass-through to trade, using Korean firm-level balance sheet and customs transaction data. We show that exporters are not naturally hedged: export-intensive firms do not borrow more in foreign currency. Exploiting the 1997 devaluation, we find increases in foreign currency debt exposure led to lower export quantity growth and higher price growth for smaller firms, with the opposite pattern for very large firms. Liquidity shortages constrain production among smaller firms, while larger firms offset debt burdens by expanding exports. Panel analysis shows the financial channel remains relevant in recent years.