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

Author

Listed:
  • Arunima Paul
  • John Chung

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.

Suggested Citation

  • Arunima Paul & John Chung, 2025. "Welfare Effects of Financial Access on Trade: Evidence from Community Reinvestment Act (CRA) Business Loans," Auburn Economics Working Paper Series auwp2025-09, Department of Economics, Auburn University.
    • Handle: RePEc:abn:wpaper:auwp2025-09
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    File URL: https://cla.auburn.edu/econwp/Archives/2025/2025-09.pdf
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    References listed on IDEAS

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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