Import competition, trade credit and financial frictions in general equilibrium

Esposito, Federico and Hassan, Fadi (2023) Import competition, trade credit and financial frictions in general equilibrium. CEP Discussion Papers (CEPDP1901). London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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Abstract

We analyze the role of trade credit and financial frictions in the propagation of international trade shocks along the supply chain. First, we show empirically that exposure to import competition from China increased the use of trade credit in the U.S. Then, we use a multi-country input-output trade model with borrowing constraints, trade credit, and endogenous employment to quantify the general equilibrium effects of such increase, characterizing the different channels at work. Borrowing constraints amplify the negative consequences of the China shock on employment, but introducing trade credit reduces these losses by 8%-27%, depending on the tightness of the constraints.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://cep.lse.ac.uk/_new/publications/discussion...
Additional Information:	© 2023 The Author(s)
Divisions:	Centre for Economic Performance
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HF Commerce
JEL classification:	E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E10 - General E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy F - International Economics > F1 - Trade > F14 - Country and Industry Studies of Trade F - International Economics > F1 - Trade > F15 - Economic Integration F - International Economics > F1 - Trade > F16 - Trade and Labor Market Interactions G - Financial Economics > G2 - Financial Institutions and Services > G20 - General
Date Deposited:	16 Jan 2024 09:48
Last Modified:	16 Jan 2024 10:45
URI:	http://eprints.lse.ac.uk/id/eprint/121378

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