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Import Competition, Trade Credit, and Financial Frictions in General Equilibrium

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  • Esposito, Federico
  • Hassan, Fadi

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.

Suggested Citation

  • Esposito, Federico & Hassan, Fadi, 2023. "Import Competition, Trade Credit, and Financial Frictions in General Equilibrium," CEPR Discussion Papers 17926, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17926
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    Cited by:

    1. is not listed on IDEAS
    2. Hardy, Bryan & Saffie, Felipe, 2024. "From carry trades to trade credit: Financial intermediation by non-financial corporations," Journal of International Economics, Elsevier, vol. 152(C).
    3. Joaquín Blaum & Federico Esposito & Sebastian Heise, 2025. "Input Sourcing Under Supply Chain Risk: Evidence from U.S. Manufacturing Firms," Staff Reports 1141, Federal Reserve Bank of New York.
    4. Cengizhan Karaca, 2023. "Dynamics of Trade Credit, Bank Credit Extension, Sustainable Economic Growth, and Imports: Evidence from the European Non-Financial Sector," Sustainability, MDPI, vol. 15(17), pages 1-24, August.

    More about this item

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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