Trade shocks and credit reallocation

Federico, Stefano, Hassan, Fadi and Rappoport, Veronica ORCID: 0009-0007-3665-4304 (2025) Trade shocks and credit reallocation. American Economic Review, 115 (4). pp. 1142-1169. ISSN 0002-8282 (In Press)

Text (federico-et-al-2025-trade-shocks-and-credit-reallocation) - Published Version Download (836kB)

• Scopus publication

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.

Item Type:	Article
Additional Information:	© 2025 American Economic Association.
Divisions:	Management
Subjects:	H Social Sciences > HG Finance H Social Sciences > HB Economic Theory
JEL classification:	F - International Economics > F1 - Trade > F14 - Country and Industry Studies of Trade G - Financial Economics > G3 - Corporate Finance and Governance > G31 - Capital Budgeting; Fixed Investment and Inventory Studies G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L25 - Firm Performance: Size, Diversification and Scope, Age, Profit, and Sales P - Economic Systems > P3 - Socialist Institutions and Their Transitions > P33 - International Trade, Finance, Investment, and Aid
Date Deposited:	15 Apr 2025 08:48
Last Modified:	16 Apr 2025 14:30
URI:	http://eprints.lse.ac.uk/id/eprint/127945

Actions (login required)

View Item