Credit and Social Unrest: Evidence from 1930s China
89 Pages Posted: 15 Feb 2017 Last revised: 25 Apr 2019
Date Written: April 23, 2019
Do credit contractions trigger social unrest? To answer this question, we turn to a natural experiment in 1930s China, where the 1933 U.S. Silver Purchase program acts as a shock to bank lending. This setting limits the scope for reverse causality, focuses the set of relevant social actors (factory workers and the Communist Party), and helps eliminate potential confounding factors through the use of micro data. We assemble a novel, hand-collected dataset of loan contracts between banks and individual firms, labor unrest episodes, and underground Communist Party penetration. We show that the Silver Purchase shock results in a severe credit contraction, and that firms borrowing from banks with a larger exposure to the shock experience increased labor unrest and Communist Party penetration among their workers. These findings contribute to understanding the socio-political consequences of credit shocks.
Keywords: Silver Purchase program, political unrest, financial history
JEL Classification: G01, G21, N15, N25
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