Industrial Policy and Capital Misallocation in Exporting

August 24, 2026

Working Paper 2026-12

Abstract: Trade financing through export credit agencies is a key tool of modern industrial policy. We provide a theory to evaluate its welfare effects, and we study its causal impact on trade, firm investment, and capital misallocation by using the effective shutdown of the US export credit agency from 2015 to 2019 as a natural experiment. First, we show that the US Export-Import Bank (EXIM) has large causal effects: comparing industries exposed and unexposed to the shutdown, we find that exposed industries experience a product-level export reduction of approximately $4.49 for each $1 lost in EXIM financing. EXIM-dependent firms also experience substantial contractions in revenues, investment, and employment. Second, shutting down EXIM increases capital misallocation because firms with high marginal revenue product of capital (MRPK) disproportionately contract while low-MRPK firms are largely unaffected. Terms-of-trade adjustments and freeing capital for domestic producers do not appear to offset these losses empirically. Our results indicate that even in advanced economies with developed financial markets, industrial policy that lowers financing constraints for exporters can raise output, improve capital allocation, and generate welfare gains.

JEL classification: L52, F13, F14, H81, D24, G28, E22, G32

Key words: export credit agencies, industrial policy, trade finance, capital misallocation, financing constraints, exports, firm investment

https://doi.org/10.29338/wp2026-12

Adrien Matray is with the Federal Reserve Bank of Atlanta and CEPR. Karsten Müller is with National University of Singapore; Department of Finance and Risk Management Institute; Chenzi Xu is with the University of California, Berkeley, NBER, and CPER; Poorya Kabir is with the National University of Singapore.

The paper has been certified as "Perfectly Reproducible" by CASCaD. The authors thank conference and seminar participants and particularly David Lagakos, Nathan Lane, Natalia Ramondo, Andrés Rodríguez-Clare, as well as their referees and editor, for helpful conversations and feedback. They also thank Robin Bae, Olena Bogdan, Pablo Rodriquez, Yachi Tu, Xiangyu Qiu, Wendy Yin, and Zhongyu Yin for excellent research assistance. Kabir acknowledges financial support from the Singapore Ministry of Education AcRF Tier 1 Research Grant No. A-8000758-00-00. Müller acknowledges funding from a Singapore Ministry of Education startup grant and Presidential Young Professorship (A-0003319-01-00 and A-0003319-02-00). Xu acknowledges financial support from the Clausen Center at the University of California, Berkeley. The views expressed in this paper are those of the authors and do not necessarily represent those of the Federal Reserve Bank of Atlanta or the Federal Reserve System.

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