Essays on Financial Frictions, Shipping Frequency and Exchange Rate Pass-Through

In three chapters of this dissertation, I examine financing frictions, shipping frequency, and exchange rate pass-through.

In the first chapter, I develop a model of importer-exporter procurement where the importer is procuring international inputs from the exporting firms located in developing countries. The exporters are credit constrained for working capital, incur the per-shipment fixed costs, and get paid after goods delivered to the importer. The model shows that for high financing costs in origin and destination, the shipping frequency increases. Furthermore, longer delivery times increase shipping frequency as well as procurement costs. The model also shows that the higher per-shipment fixed costs reduce the shipping frequency, in line with previous literature. The reduction of transaction costs lowers the exporter's demand for financial services through shipping frequency adjustment, mitigating the financial frictions of the firm.

In the second chapter, I investigate whether the conclusions regarding the effect of per-shipment fixed costs on shipping frequency in the existing literature extend to developing countries. My estimation method addresses several biases. First, I deal with aggregation bias with the firm, product, and country-level analysis. Second, I consider the Poisson Pseudo Maximum Likelihood (PPML) estimation method to deal with heteroscedasticity bias from OLS estimation of log-linear models. Third, I fix the distance non-linearity of Bangladeshi exports. Finally, I consider the effect of financing cost on shipping frequency to address omitted variable bias. Using transaction-level export data from Bangladesh, I find that 10\% higher per-shipment costs reduce the shipping frequency by 3.45\%. This shipping frequency response is considerably higher than that of developed countries. The findings are robust to different specifications and subsamples.

Finally, in the third chapter, I estimate the pricing to market as well as the exchange rate pass-through at a monthly, quarterly, and annual level of data frequency to deal with aggregation bias. Furthermore, I investigate how delivery time-based factors such as more frequent shipments and faster transport affect a firm's pricing to market behavior. Using disaggregated trade data of Bangladesh, I find very small pricing to the markets to the exchange rates in the exporter's price. This minimal price response and high pass-through contrast with the literature of incomplete pass-through at the annual level. By considering the characteristics of the firms, products, and destinations, I investigate the heterogeneity of the pass-through. The findings remain consistent with several robustness checks.