Good Connections: Bank Specialization and the Tariff Elasticity of Exports

42 Pages Posted: 15 Mar 2021

Multiple version iconThere are 2 versions of this paper

Date Written: March 2021

Abstract

In this paper, we show that exporters react more strongly to a tariff cut when their banks have been specializing in funding exports to this country. To make our case, we build upon a theoretical model where an informational advantage provided by the exporter's bank results in a lower distribution cost in the destination country. We test the implications of this model for French exporters using the 2011 free trade agreement between the European Union and the Republic of South-Korea as a quasi-natural experiment. We measure a bank's specialization in Korea using granular information on bank-firm credit lines and firm-level exports in the years preceding the agreement. We compare how customers of different banks react to the trade liberalization episode using detailed information on the bilateral tariff cuts and disaggregated data on French export flows at the firm-product level. We find robust evidence that the specialized lenders help exporters to respond more strongly to changes in tariffs. The effect is strong for all firms along the extensive margin, but only for smaller, less productive exporters along the intensive margin.

JEL Classification: F14, G21

Suggested Citation

Berthou, Antoine and Mayer, Thierry and Mésonnier, Jean-Stéphane, Good Connections: Bank Specialization and the Tariff Elasticity of Exports (March 2021). Available at SSRN: https://ssrn.com/abstract=3805305

Antoine Berthou (Contact Author)

Banque de France ( email )

Paris
France

Thierry Mayer

Sciences Po ( email )

Jean-Stéphane Mésonnier

Banque de France ( email )

Paris
France
+33 (0)1 42 92 91 63 (Phone)

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