Trade shocks and credit reallocation

Stefano Federico, Fadi Hassan and Veronica Rappoport

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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 nonperforming 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: F14 G31 G32 L25 P33 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2025-04-30
New Economics Papers: this item is included in nep-cna
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Published in American Economic Review, 30, April, 2025, 115(4), pp. 1142-1169. ISSN: 0002-8282

Downloads: (external link)
http://eprints.lse.ac.uk/127945/ Open access version. (application/pdf)

Related works:
Journal Article: Trade Shocks and Credit Reallocation (2025)
Working Paper: Trade Shocks and Credit Reallocation (2023)
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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