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Bank Ownership and Margins of Trade

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  • Pavel Chakraborty

Abstract

Does a bank's ownership matter for a firm's performance (to which it is connected)? Especially, in the event of a crisis? I study this question through the effect of 2008-09 crisis to provide evidence on a new channel which matters significantly for a firm's export performance - bank ownership. In particular, I find: (a) firms connected to private and/or foreign banks earn around 7.7- 39% less in terms of their export earnings during the crisis as compared to firms' having banking relationships with public-sector banks. This happened as the public-sector banks were differentially treated by the Central Bank of India during the crisis due to a clause in the Indian Banking Act of 1969; (b) effect is concentrated only on the intensive margin of trade; (c) drop in exports is driven by firms' client to big domestic-private banks and banks of US origin; (d) firms not connected to public-sector banks also laid-o¤ workers (both managers and non-managers), employed less capital and imported less raw materials. In addition, I also find that firms with lower average product of capital (than the median) received about 50% more loans from the public-sector sources, suggesting a significant reinforcement of inefficiency in the Indian economy due to misallocation of credit.

Suggested Citation

  • Pavel Chakraborty, 2019. "Bank Ownership and Margins of Trade," Working Papers 282850537, Lancaster University Management School, Economics Department.
  • Handle: RePEc:lan:wpaper:282850537
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    File URL: http://www.lancaster.ac.uk/media/lancaster-university/content-assets/documents/lums/economics/working-papers/LancasterWP2019_022.pdf
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    References listed on IDEAS

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    1. World Bank, "undated". "South Asia Economic Focus, Spring 2020," World Bank Publications - Reports 33478, The World Bank Group.

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    More about this item

    Keywords

    Bank Ownership; 2008-09 Financial Crisis; Public-sector Banks; Private and/or Foreign Banks; Exports;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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