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Trade Shocks and Credit Reallocation

Stefano Federico, Fadi Hassan and Veronica Rappoport

No 14792, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper shows that there are endogenous financial constraints arising from trade liberalization. Banks with a large share of loans on firms exposed to competition from China suffer an increase in non-performing loans and reduce their credit capacity. The drop in credit supply affects both firms directly exposed to import-competition from China, and firm expected to expand upon trade liberalization, with economically relevant implications in terms of employment, investment, and output. This financial spillover between losers and winners from trade retards the reallocation of factors of production between firms and sectors, crucial to the welfare implication of trade liberalization.

JEL-codes: F61 F62 G21 (search for similar items in EconPapers)
Date: 2020-05
New Economics Papers: this item is included in nep-fdg and nep-int
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Working Paper: Trade shocks and credit reallocation (2019) Downloads
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