Exchange Rates, Borrowing Costs, and Exports: Firm-Level Evidence

This study empirically examines the effects of currency depreciation on the exporting firms' borrowing costs and exports. Using Korean data, first we find evidence that unanticipated currency depreciation increases the firm-level real interest rate for firms carrying foreign-currency debts, and firms in sectors importing intermediate inputs. In addition, the rise in the firm-level real interest rate is driven by long-term foreign-currency debts rather than short-term ones. Next, we show that currency depreciation has a contractionary effect of rising costs of borrowing and imported inputs, and an expansionary effect of an improvement in price competitiveness. However, the overall effect of currency depreciation on exports is ambiguous and depends on the share of foreign-currency debts in total debts and the share of imported intermediate inputs in total inputs.