Import Competition and Household Debt

73 Pages Posted: 19 Jun 2017

See all articles by Jean-Noel Barrot

Jean-Noel Barrot

HEC Paris

Erik Loualiche

University of Minnesota, Finance

Matthew C. Plosser

Federal Reserve Banks - Federal Reserve Bank of New York

Julien Sauvagnat

Bocconi University; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research

Multiple version iconThere are 3 versions of this paper

Date Written: June 2017

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-Noel and Loualiche, Erik and Plosser, Matthew C. and Sauvagnat, Julien, Import Competition and Household Debt (June 2017). CEPR Discussion Paper No. DP12098, Available at SSRN: https://ssrn.com/abstract=2988857

Jean-Noel Barrot (Contact Author)

HEC Paris ( email )

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Erik Loualiche

University of Minnesota, Finance ( email )

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Minneapolis, MN 55455
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HOME PAGE: http://https://loualiche.gitlab.io/www/

Matthew C. Plosser

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
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Julien Sauvagnat

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

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Milan, 20136
Italy

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