Evaluating the Impact of Export Finance Support on Firm-Level Export Performance: Evidence from Pakistan

Abstract

This paper evaluates the impact of two export finance support schemes: The Export Finance Scheme (EFS) and the Long-Term Finance Facility for Plant & Machinery (LTFF) on firm-level export performance. These policies offer loans to exporters at concessionary interest rates to finance short-term working capital and long-term investment in machinery and equipment respectively. To do so, we combine customs data with information about which firms participate in each scheme and the value of the loans they obtain between 2015 and 2017. We find that EFS and LTFF increased the growth rate of exports sales by 7 and 8-11 percentage points respectively. Neither policy exerts a significant impact on the number of products that a firm exports or the number of foreign countries it sells to. Our analysis indicates that facilitating long-term investment in physical capital is more cost effective to raise exports than subsidizing exporters' working capital needs.

Export Boosting Policies and Firm Performance: Review of Empirical Evidence Around the World

“…), and Cadot et al (2015) find 10.4% (±2.2 p.p. ), while one article finds no effect (Defever et al 2020a). In addition to the extensive margin with respect to the number of countries served, it is also worth noting the mixed results in terms of the type of new countries served.…”

“…export discount credit programmes) and public export credit guarantees. For example, Defever et al (2020a) provide evidence for subsidised export loans, Agarwal et al (2018) for public export credit guarantees, while Defever and Riaño (2017) using a two-country model of trade with heterogeneous firms, provide a quantitative assessment of the effect that subsidies with an export share requirement have on exports and conclude that this type of subsidy increases exports more than an equivalent unconditional subsidy accessible to each exporter. All of these policies aim to boost exports and should therefore be reviewed together.…”

“…Two articles find positive effects of subsidised export loans (i.e. export discount credit programme) (Akgündüz et al 2018;Defever et al 2020a) on firm performance. Beneficiary firms show substantially higher exports, but their profits, domestic sales (Akgündüz et al 2018), number of exported products and markets did not have the same positive effect (Defever et al 2020a).…”

“…38 Using additionality in value added to estimate benefits in two small open economies, Croatia and Denmark, Srhoj and Walde (2020) find for export-oriented public grants that the benefits to be 139.5%, while Munch and Schaur (2018) find for EPP the benefits to be 300% of the direct policy costs. When export additionality is used, benefits are reported to massively exceed EPP costs, by 16-29 times in Belgium (Broocks and Van Biesebroeck 2017), 19 times in Tunisia (Cadot et al 2015) 39 9 times in Italy (Comi and Resmini 2019) and 1.2 to 11.7 times in Pakistan (Defever et al 2020a). Few studies report programme costs and find no effect on export value.…”

“…For example, Defever et al (2020b) report programme costs of about 4 million US dollars a year for a cash transfer programme in Nepal, which was an ad-valorem subsidy of 1% or 2% of the export value of governmentselected export products types, but find no positive effect on export value, so the scheme was not cost-effective. Defever et al (2020a) show that the additional exports triggered by subsidised loans for long-term investment in fixed assets (LTFF) exceeded the direct costs of the 37 Broocks and Van Biesebroeck (2017), Cruz (2014), Kim et al (2018) 38 Cadot et al (2015, Broocks and Van Biesebroeck (2017), Comi and Resmini (2019), Defever et al (2020a) 39 In the paper by Cadot et al (2015) we compare additional exports from Table 15, row "c" (TY) and total private and public cost of the FAMEX programme. scheme by 11.7 times, while the additional exports triggered by subsidised loans for working capital (EFS) exceeded the direct costs of the scheme by 1.2 times.…”