COST Workshop on Firm-Level Data Analysis in Transition and Developing Economies

Abstract We provide evidence on the real effects of credit supply shocks utilizing a new firm-level database from six Latin American countries between 1990 to 2005. Holding creditworthiness constant through foreign currency debt exposure, we compare investment undertaken by domestic exporters to that of foreign-owned exporters, where the latter's exposure to the liquidity shock is lower. We find that foreign-owned exporters increase investment by 15 percentage points relative to domestic exporters only when the currency crisis occurs simultaneously with a banking crisis. These findings suggest that the key factor hindering investment during financial crises is the decline in credit supply. JEL Classification: E32, F15, F36, O16 Keywords: foreign ownership, twin crisis, exports, short-term dollar debt, bank lending, growth * Corresponding author: Sebnem email: skalemli@mail.uh.edu,. We thank Laura Alfaro, Hoyt Bleakley, Roberto Chang, Fritz Foley, Mario Crucini, Aimee Chin, Philipp Schnabl and Bent Sorensen for valuable suggestions and the participants of the seminar at Alicante