Trade Shocks and Credit Reallocation

Stefano Federico, Fadi Hassan and Veronica Rappoport

No 31111, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper identifies a credit-supply contraction that arises endogenously after trade liberalization. Banks with loan portfolios concentrated in sectors exposed to competition from China face an increase in non-performing loans after China’s entry into the World Trade Organization. As a result, they reduce the supply of credit to firms, irrespective of the firm’s sector of operation. This cut in credit translates into lower employment, investment, and output. Through this mechanism, the financial channel amplifies the shock to firms already hit by import competition from China and passes it on to firms in sectors expected to expand upon trade liberalization.

JEL-codes: F1 F60 G21 (search for similar items in EconPapers)
Date: 2023-04
New Economics Papers: this item is included in nep-ban, nep-cna and nep-int
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Trade shocks and credit reallocation (2020)
Working Paper: Trade Shocks and Credit Reallocation (2020)
Working Paper: Trade shocks and credit reallocation (2019)
Working Paper: Trade shocks and credit reallocation (2019)
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