Financial Integration through Production Networks

42 Pages Posted: 19 Jul 2022

See all articles by Indraneel Chakraborty

Indraneel Chakraborty

University of Miami

Saketh Chityala

Indian School of Business

Apoorva Javadekar

Indian School of Business

Rodney Ramcharan

University of Southern California, Marshall School of Business

Date Written: July 6, 2022

Abstract

This paper studies how interconnected plants distribute additional liquidity from banks through the supply chain. Using a spatially segmented bank branch expansion rule in India, we find that direct exposure to additional bank credit allows plants to hold less precautionary cash and increase bank debt. Directly exposed plants pass through liquidity to customer plants as short-term trade credit. This liquidity spillover improves sales, employment, and productivity at customer plants. Structural estimation yields an average credit multiplier of 1.48. Our results underscore the credit multiplier effects of production networks and the importance of financial integration among firms with limited banking services.

Keywords: Trade Credit, Production Networks, Spillover, Real Effect

JEL Classification: E44, G21, G30, G32, E58

Suggested Citation

Chakraborty, Indraneel and Chityala, Saketh and Javadekar, Apoorva and Ramcharan, Rodney, Financial Integration through Production Networks (July 6, 2022). Available at SSRN: https://ssrn.com/abstract=4155676 or http://dx.doi.org/10.2139/ssrn.4155676

Indraneel Chakraborty

University of Miami ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States
312-208-1283 (Phone)

HOME PAGE: http://sites.google.com/site/chakraborty/

Saketh Chityala

Indian School of Business

Apoorva Javadekar

Indian School of Business ( email )

Hyderabad, Gachibowli 500 019
India

Rodney Ramcharan (Contact Author)

University of Southern California, Marshall School of Business ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

HOME PAGE: http://https://sites.google.com/site/rodneyramcharan/

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