The Effect of China’s WTO Entry on Local U.S. Banks
Posted: 28 Dec 2022 Last revised: 7 Apr 2023
Date Written: December 20, 2022
Abstract
We analyze how the product market competition shock due to China’s WTO entry affected local US banks across various regions. Using a difference-in-differences empirical strategy, we document that in regions with greater exposure to the shock, loan quality deteriorated and bank profitability declined more severely, coupled with slower loan growth and higher loan interest rates after the shock. Further, small banks lost market share and banking market concentration increased more in these regions. Overall, our paper documents how China’s WTO entry negatively affected the local banking system in the U.S.
Keywords: Product market competition; China’s WTO entry; bank performance; bank market structure; loan growth and pricing; US banks
JEL Classification: F13, G21, L1, L2
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