Growing beyond trade: Export shocks and the spatial expansions of bank branching

Jie Li and Angdi Lu

The World Economy, 2025, vol. 48, issue 3, 416-449

Abstract: This paper empirically examines the impact of tariff reductions for exporters on banks' location choices with geo‐referenced information on subsidiaries and branches of China's state‐owned and joint‐stock banks. We construct prefecture‐level tariff barrier changes faced by exporters from 2001 to 2007 and identify the impact by exploiting within‐bank cross‐prefecture changes in bank branching patterns. The empirical results suggest a positive and significant pass‐through from export expansion to banks' geographic expansion. Specifically, a 10% export tariff reduction would induce a 1.88% increase in the local number of bank branches. This result holds under a battery of robustness tests. Mechanism tests suggest that increased credit demand in the corporate sector, both at the intensive and extensive margins, is the main channels that explain the baseline patterns. The findings in this paper offer valuable insights into the relationship between internationalisation and financial development.

Date: 2025
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