Government Credit and Trade War

Cai, Ning; Feng, Jinglu; Liu, Yong; Ru, Hong; Yang, Endong

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Government Credit and Trade War

BOFIT Discussion Paper No. 7/2019

47 Pages Posted: 26 Apr 2019 Last revised: 27 Apr 2019

See all articles by Ning Cai

Hong Ru

Nanyang Business School, Nanyang Technological University

Endong Yang

Faculty of Business Administration, University of Macau

There are 2 versions of this paper

Date Written: April 23, 2019

Abstract

By merging transaction-level trade data from China Customs and loan data from the China Development Bank (CDB), we analyze the effects of government credit on trade activities. We find that CDB credit mainly flows to SOEs in strategic industries at the top of the supply chain. These up-stream loans lead to the lower price and higher amount of export goods of private firms in down-stream industries, which leads to decreases in employment and performance of the US firms in the same industry. In contrast, the US firms in downstream industries use cheaper intermediate goods imported from China and perform better subsequently.

Keywords: government credit, export, supply chain, trade war

JEL Classification: E51, F30, G21, G28

Suggested Citation: Suggested Citation

Cai, Ning and Feng, Jinglu and Liu, Yong and Ru, Hong and Yang, Endong, Government Credit and Trade War (April 23, 2019). BOFIT Discussion Paper No. 7/2019, Available at SSRN: https://ssrn.com/abstract=3378401