Studying the Effects of Household and Firm Credit on the Trade Balance: The Composition of Funds Matters

Abstract

In this article, we focus on distinguishing between household and corporate sector credit and investigate the effects these two types of credit have on the trade balance. A higher level of private credit indicates better developed financial markets and easier credit access for businesses and households. Yet, both types of borrowers vary in terms of the use of credit. Our model and empirical analysis suggest that the composition of credit does matter for the trade balance: lending to consumers has a negative effect on net exports, while firm loans contribute to a rise in net exports. (JEL F32, F41, G21)

JEL Classification: F32, F41, G21