Trade Shocks and Credit Reallocation

Stefano Federico, Fadi Hassan and Veronica Rappoport

American Economic Review, 2025, vol. 115, issue 4, 1142-69

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: D22 F14 G21 G31 G32 L25 P33 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.aeaweb.org/doi/10.1257/aer.20200704 (application/pdf)
https://doi.org/10.3886/E208206V1 (text/html)
https://www.aeaweb.org/articles/materials/22769 (application/pdf)
https://www.aeaweb.org/articles/materials/22770 (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aecrev:v:115:y:2025:i:4:p:1142-69

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

DOI: 10.1257/aer.20200704

Access Statistics for this article

American Economic Review is currently edited by Esther Duflo

More articles in American Economic Review from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().