---
title: "Industrial Policy and Capital Misallocation in Exporting"
authors: "Adrien Matray; Karsten Muller; Chenzi Xu; Poorya Kabir"
source: "Federal Reserve Bank of Atlanta (Working Paper 2026-12)"
source_url: "https://www.atlantafed.org/research-and-data/publications/working-papers/2026/08/24/12-industrial-policy-and-capital-misallocation-in-exporting"
paper_id: "Atlanta Fed WP 2026-12"
harvested: 2026-09-28
year: 2026
keywords: [export credit agencies, industrial policy, trade finance, capital misallocation, financing constraints, EXIM, exports, firm investment]
pdf_url: "https://www.atlantafed.org/-/media/Project/Atlanta/FRBA/Documents/research-and-data/publications/working-papers/2026/08/24/12-industrial-policy-and-capital-misallocation-in-exporting.pdf"
---
## 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. DOI: 10.29338/wp2026-12. Certified "Perfectly Reproducible" by CASCaD.

## Why it's in the StratMac library

- **A traded-sector shock that is an actual policy discontinuity, not an inferred one.** SM's forward section leans on trade-policy shocks inferred from tariff/announcement dates. The EXIM shutdown 2015-2019 is the cleaner instrument: a dated, exogenous withdrawal of export financing, with the exposed/unexposed contrast built in.
- **The magnitude is quotable and the channel is stated:** ~$4.49 of lost product-level exports per $1 of lost EXIM financing, with firm-level contractions in revenue, investment and employment. That is a trade-finance transmission channel distinct from tariff-price effects, so it broadens the `external` section beyond tariffs.
- **The misallocation result is the non-obvious part** — high-MRPK firms contracted disproportionately, and neither terms-of-trade adjustment nor capital released to domestic producers offset the losses. This is evidence *against* the standard offsetting-channels story, which is what makes the paper worth filing rather than assuming.
- Relevant caveat for the SM framing: the finding is that financing constraints bind even in a financially developed economy, which cuts against reading US external-sector dynamics as purely demand- or price-driven.