DP15890 Good connections : bank specialization and the tariff elasticity of exports

Author(s): Antoine Berthou, Thierry Mayer, Jean-Stéphane Mésonnier
Publication Date: March 2021
Date Revised: March 2021
Keyword(s): bank specialization, Trade Elasticities, trade liberalization
JEL(s): F14, G21
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15890

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.