Foreign banks and firms’ export dynamics: Evidence from China’s banking reform

Ana Fernandes and Jing-Lin Duanmu

Journal of Development Economics, 2025, vol. 174, issue C

Abstract: This paper investigates how banking integration affects export dynamics. To estimate the causal link, we exploit the phased liberalization of the Chinese banking industry to foreign competition across cities, based on WTO accession commitments, and use transaction-level data for all Chinese exporters. Following deregulation of foreign banks’ local-currency business, the increased local presence of foreign banks from the importing country raises export entry, the number of products and initial sales to the same country for firms in the city but has no effect on exit or growth. The effects are significantly more pronounced for exports to more distant countries, for firms in industries with fewer collateralizable assets and those exporting differentiated goods. We uncover the particular channels through which banking integration facilitates exports. The results are consistent with foreign banks’ informational advantage in screening export projects, relying less on collateral for lending decisions, and reducing uncertainty for firms exporting to the banks’ home country.

Keywords: Banking deregulation; Exports; Export dynamics; Export entry; Export risk; Financial constraints; Financial globalization; Foreign banks; Information asymmetry; Local-currency lending; Uncertainty (search for similar items in EconPapers)
JEL-codes: F10 F14 F36 G20 G28 G32 (search for similar items in EconPapers)
Date: 2025
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Working Paper: Foreign Banks and Firms' Export Dynamics: Evidence from China's Banking Reform (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:174:y:2025:i:c:s0304387825000252

DOI: 10.1016/j.jdeveco.2025.103474

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