Corporate Dollar Debt and Global Trades

Abstract

We study the impact of dollar-denominated debt and firm heterogeneity on the exchange rate pass-through to global trades. Using Korean firm-level balance sheet data and transaction-level customs data, we find that following the 1997 devaluation, exporters with higher foreign currency debt exposure tend to lower export quantities and charge higher prices. In contrast, very large exporters increase export quantities and lower prices as they are more indebted in foreign currency. Financial frictions constrain smaller firms, limiting their production capacity, while large firms experience less disruption in their production and increase exports to mitigate the liquidity shortages caused by higher debt burden. Panel data from 2001-20 further support the balance sheet effect of dollar debt on exports.