Research

This paper examines the impact of trade credit and bank loans on firms' exchange rate pass-through. Using a comprehensive dataset including customs transaction records and balance sheet data for Chinese exporters during 2000-2011, we document that firms that more intensively extend trade credit to their buyers exhibit more complete exchange rate pass-through. Further empirical investigation identifies the mechanism: extending trade credit increases exporters’ dependence on bank loans due to working capital constraints. The firm-level bank loan interest rate decreases with home currency depreciation, indicating that the marginal financing cost associated with trade credit is sensitive to exchange rate fluctuations. Motivated by these findings, we develop a theoretical model in which exporters extend trade credit to importers and borrow from banks due to a working capital constraint. Interest rate face by an exporter is endogenously determined by banks according to the exporter's default probability. The model introduces a new mechanism through which firm's financial activities affect exchange rate pass-through.

This paper examines how firms determine optimal trade credit levels in international trade under the influence of foreign real shocks. Motivated by the role of trade credit as firm-to-firm debt intertwined with supply chain transactions, this study investigates two potential outcomes: whether upstream firms extend more credit to support downstream buyers and mitigate market exit or if elevated default risks constrain credit provision. Utilizing a comprehensive dataset of Chinese manufacturing firms, this study applies a shift-share design to construct exogenous firm-level shocks in global supply and demand. Empirical analysis document that larger firms provide less responsive trade credit when exposed to foreign shocks, attributed to their flexibility in adjusting import and export operations via international input-output linkages. To explain these findings, I develop a heterogeneous firm model incorporating firm-destination-specific trade credit shares and working capital financing. The model demonstrates how trade credit interacts with the institutional quality of export destinations to shape both extensive and intensive margins in trade, which explains the heterogeneity in trade credit responses to foreign shocks.

The Chinese economy embodies a unique blend of substantial state-owned enterprises, foreign direct investment (FDI), and a robust private sector. This paper studies the macroeconomics impact of these distinct ownership structures on the international comovement between China and the global economy. Our empirical investigation of Chinese firm-level data unveils that compared with foreign and private counterparts, the state-owned enterprises demonstrate significantly reduced comovement with the foreign countries that they connect with through imports and exports. This empirical finding underscores the role of state-owned enterprises as a stabilizing force in Chinese macroeconomy. It rationalizes the provision of subsidies to support the presence of state-owned economy as a mechanism for bolstering macroeconomic stability.