Welfare Effects of Financial Access on Trade: Evidence from Community Reinvestment Act (CRA) Business Loans

Arunima Paul and John Chung

No auwp2025-09, Auburn Economics Working Paper Series from Department of Economics, Auburn University

Abstract: Credit access plays a pivotal role in enabling firms to participate in global markets and support broader economic growth. While large firms benefit from steady revenue streams and easier financing options, small and medium-sized enterprises (SMEs) frequently encounter substantial challenges in securing credit. This paper analyzes U.S. metropolitan area–level data to assess how local expansions in credit supply, particularly via Community Reinvestment Act (CRA) loans, influence export performance. Using the geographic dispersion of bank headquarters as an instrumental variable, we estimate that a 10% increase in credit availability results in a 4.5% increase in export volumes. Extending the analysis to a heterogeneous firm framework with credit frictions, we show that a 10% reduction in trade costs produces welfare gains from trade that are 18.75% larger when firms are unconstrained by credit.

Keywords: Credit access; Exports; SMEs; Community Reinvestment Act; Financial constraints; Trade; Welfare (search for similar items in EconPapers)
JEL-codes: E44 F14 F41 G21 (search for similar items in EconPapers)
Date: 2025-10
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