Global Firms in Large Devaluations.

This article investigates the effects of large currency devaluations on firms' joint import and export decisions, documenting two key empirical facts: (1) large devaluations lead to an increase in the aggregate share of imported inputs in total input spending, and (2) economic activity reallocates toward firms that are intensive importers. Using data from 43 devaluation episodes between 1970 and 2011, as well as detailed microdata from Mexico (1995) and Indonesia (1998), the study finds that exporters—who tend also to be intense importers—expand after devaluations, driving these patterns. The author develops a quantitative model of "global firms" that simultaneously import and export, calibrated to Mexican data, which successfully replicates the observed low aggregate substitution between domestic and foreign inputs and the reallocation toward import-intensive exporters. Compared to models excluding joint importing-exporting behavior, this framework predicts higher growth in total exports and imports and a smaller reduction in the trade deficit following devaluations, highlighting the importance of firms' global participation in shaping aggregate trade responses.