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Government Credit and International Trade

Published online by Cambridge University Press:  20 January 2025

Hong Ru Open the ORCID record for Hong Ru [Opens in a new window]  and
Endong Yang
Hong Ru*
Affiliation:
Nanyang Technological University Nanyang Business School
Endong Yang
Affiliation:
University of Macau Faculty of Business Administration [email protected]
*
[email protected] (corresponding author)
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Abstract

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Using transaction-level trade data from China Customs and loan data from the China Development Bank (CDB), we find that CDB credit to strategic industries at the top of supply chains leads to lower prices, higher volume, and more product varieties and destinations for exports for firms in downstream industries. These positive spillovers stem from reduced intermediate goods prices and increased trade credit from upstream to downstream firms caused by CDB loans. Notably, this surge in import activity displaces U.S. firms within the same industry but bolsters downstream U.S. firms’ business performance and employment.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 33
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2025. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank Nittai Bergman, Hans Degryse, Haichao Fan, Zuzana Fungacova, Jian Gao, Lei Gao, Jarrad Harford (the editor), Yi Huang, Yang Jiao, Chen Lin, Shu Lin, Ernest Liu, Randall Morck, Orkun Saka, Julien Sauvagnat, Antoinette Schoar, Kang Shi, Philip Strahan, Anjan Thakor, Robert Townsend, Pengfei Wang, Shang-Jin Wei, Danyang Xie, Bing Xu, Haoxiang Zhu, and an anonymous referee. We are grateful for valuable comments and suggestions received from the following events: 2020 AEA Poster, 2019 ABFER, 2019 SFS Cavalcade North America, the 2019 SERC Conference, 2019 CESifo/BOFIT Workshop on Banking and Institutions, and the 2018 UIBE International Conference in Finance. We also thank Chinese University of Hong Kong (Shenzhen), Nanyang Technological University, and Xiamen University seminar participants for their comments. To the authors’ knowledge, no conflicts of interest, financial or otherwise, exist. The views presented are our own, and we are solely responsible for any errors.

Funding: We gratefully acknowledge the financial support received from the Ministry of Education, Singapore, under its Tier 1 RG134/20., the National Science Foundation of China [72302003], the Multi-Year Research Grant from the University of Macau [MYRG-GRG2023-00011-FBA], and in-kind support for data access from the China Development Bank (CDB).

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