A Firm‐level Examination of the Exports Puzzle: Why East Asian Exports Didn't Increase After the 1997–1998 Financial Crisis

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Abstract
We analyse a detailed panel dataset on Indonesian manufacturing firms to characterise the exports puzzle: the surprising absence of export‐led growth after the massive currency devaluation during the 1997–1998 Asian financial crisis. Our results show that, consistent with trade theory predictions following better terms of trade, entry into export markets increased dramatically. In conflict with the same predictions, however, many pre‐crisis exporters quit exporting. Thus stagnant export growth cannot be attributable to a lack of entrepreneurial ambition or activity amongst would‐be exporters. Rather, it apparently resulted from constraints prohibiting continued exporting by pre‐crisis exporters. Managerial reports of perceived constraints reveal little about why so many firms ceased exporting. However, ‘better’ firms, as proxied by foreign ownership, involvement in research and development, or investment in training, were more likely to continue exporting post‐crisis.

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