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Import Competition and Household Debt

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  • Barrot, Jean-No�l
  • Loualiche, Erik
  • Plosser, Matthew
  • Sauvagnat, Julien

Abstract

We analyze the effect of import competition on household balance sheets from 2000 to 2007 using individual-level data on leverage and defaults. We exploit cross-regional variation in exposure to foreign import competition using industry level shipping costs and initial differences in regions' industry specialization. We confirm the adverse effect of import competition on local labor markets during this period (Autor et al., 2013). We then show that household debt increased significantly in regions where manufacturing industries are more exposed to import competition. A one standard deviation increase in exposure to import competition explains 30% of the cross-regional variation in the growth in household leverage over the period, and is mostly driven by home equity extraction. Our results highlight the distributive effects of globalization and their consequences for the mortgage market.

Suggested Citation

  • Barrot, Jean-No�l & Loualiche, Erik & Plosser, Matthew & Sauvagnat, Julien, 2017. "Import Competition and Household Debt," CEPR Discussion Papers 12098, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:12098
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    References listed on IDEAS

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    1. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters,in: A Theory of the Consumption Function, pages 1-6 National Bureau of Economic Research, Inc.
    2. Kyle Herkenhoff & Gordon Phillips & Ethan Cohen-Cole, 2016. "The Impact of Consumer Credit Access on Employment, Earnings and Entrepreneurship," NBER Working Papers 22846, National Bureau of Economic Research, Inc.
    3. Bernard, Andrew B. & Jensen, J. Bradford & Schott, Peter K., 2006. "Survival of the best fit: Exposure to low-wage countries and the (uneven) growth of U.S. manufacturing plants," Journal of International Economics, Elsevier, vol. 68(1), pages 219-237, January.
    4. Hurst, Erik & Stafford, Frank, 2004. "Home Is Where the Equity Is: Mortgage Refinancing and Household Consumption," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(6), pages 985-1014, December.
    5. Kyle Herkenhoff, 2016. "The Impact of Consumer Credit Access on Employment, Earnings and Entrepreneurship," 2016 Meeting Papers 781, Society for Economic Dynamics.
    6. Daniel Cooper, 2013. "House Price Fluctuations: The Role of Housing Wealth as Borrowing Collateral," The Review of Economics and Statistics, MIT Press, vol. 95(4), pages 1183-1197, October.
    7. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    8. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, June.
    9. Barrot, Jean-Noël & Loualiche, Erik & Sauvagnat, Julien, 2016. "The Globalization Risk Premium," CEPR Discussion Papers 11733, C.E.P.R. Discussion Papers.
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    Cited by:

    1. Teresa C. Fort & Justin R. Pierce & Peter K. Schott, 2018. "New Perspectives on the Decline of US Manufacturing Employment," NBER Working Papers 24490, National Bureau of Economic Research, Inc.

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