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. Export-intensive firms do not borrow more in foreign currency, suggesting natural hedging is not a key driver of the currency denomination of debt. Exploiting the 1997 devaluation, we find higher foreign currency debt exposure led to lower export quantity growth and higher price growth for smaller firms, with the opposite for very large firms. Liquidity shortages constrain smaller firms, while larger firms offset debt burdens by expanding exports. The financial channel remains relevant in recent years.