Import competition and household debt

Barrot, Jean-Noël; Loualiche, Erik; Plosser, Matthew; Sauvagnat, Julien

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Import competition and household debt

Abstract: We analyze the effect of import competition on household balance sheets from 2000 to 2007 using individual data on consumer finances. We exploit variation in exposure to foreign competition using industry-level shipping costs and initial differences in regions? industry specialization. We 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 percent of the cross-regional variation in household leverage growth, and is mostly driven by home equity extraction. Our results highlight the distributive effects of globalization and their consequences for household finances.

Keywords: trade; household finances; mortgages;

JEL Classification: D14; F6; G21;