Trade Shocks and Credit Reallocation

This paper shows that there are endogenous financial constraints arising from trade liberalization. Banks with a large share of loans on firms exposed to competition China suffer an increase in non-performing and reduce their credit capacity. The drop supply affects both directly import-competition China, firm expected expand upon liberalization, economically relevant implications terms employment, investment, output. spillover between losers winners retards the reallocation factors production sectors, crucial welfare implication