Import Competition and Household Debt
(with Jean-Noël Barrot,  Matthew Plosser, and Julien Sauvagnat)

Forthcoming at the Journal of Finance

First version: Summer 2016
This version:  October 2022



Abstract:

We analyze the effect of import competition on household balance sheets
from 2000 to 2007 using individual-level data on on consumer finances.
We exploit variation in exposure to foreign competition using industry-level
shipping costs and initial differences in regions' industry specialization
to study households use of credit markets in response to income shocks.
We show that household debt increases 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 household leverage growth,
and is mostly driven by home equity extraction. Using data on individual
expectations, we find that households in affected areas underestimate
the persistence of income shock and lever up in order to smooth consumption.
Our results highlight the role played by mortgage markets in absorbing
displacement shocks triggered by globalization.



Download the working paper version of the paper
Official version for the Journal of Finance

Bibtex File

Download the full set of replication files for the Journal of Finance

CEPR Discussion Paper No. 12098
Federal Reserve Bank of New York Staff Report No. 821







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