DP12098 Import Competition and Household Debt

Author(s): Jean-Noël Barrot, Erik Loualiche, Matthew Plosser, Julien Sauvagnat
Publication Date: June 2017
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Programme Areas: Financial Economics, International Trade and Regional Economics, International Macroeconomics and Finance
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12098

We analyze the effect of import competition on household balance sheets from 2000 to 2007 using individual-level data on leverage and defaults. We exploit cross-regional variation in exposure to foreign import competition using industry level shipping costs and initial differences in regions' industry specialization. We confirm the adverse effect of import competition on local labor markets during this period (Autor et al., 2013). We then show that household debt increased significantly in regions where manufacturing industries are more exposed to import competition. A one standard deviation increase in exposure to import competition explains 30% of the cross-regional variation in the growth in household leverage over the period, and is mostly driven by home equity extraction. Our results highlight the distributive effects of globalization and their consequences for the mortgage market.