An Open Economy Model of the Credit Channel Applied to Four Asian Economies

This paper provides a theoretical model of an open economy credit channel including currency mismatch and financial fragility where exporting firms have access to international credit but non-exporting firms do not. The impact of the crisis is predicted to be dramatically different for exporters/non-exporters. We examine firms’ access to external finance in four Asian economies after 1997 using a large panel of balance sheet data. Our paper demonstrates that firm heterogeneity is critical to understanding the open economy credit channel effects of the Asian crisis since smaller and less profitable firms are indeed less likely to obtain credit than larger, export-oriented firms. JEL classification: E32, E44, E51