Essays on Banking, Trade, and Employment

Acosta, Roman

doi:https://doi.org/10.21985/n2-qdgf-xb81

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Essays on Banking, Trade, and Employment

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This dissertation contains two studies. In Chapter 1 we investigate the relationshipbetween expansionary credit events and firms’ employment decisions. To overcome the endogeneity coming from the supply side of credit we exploit the legal and political framework in Mexico to examine the effects of local governments’ prepayment of loans, a situation that leads banks to channel newfound liquidity to firms. Analysis of a novel data set covering a 10-year period shows that a one-standard-deviation increase in the issuance of new loans increases firms’ employment by 2.57 percentage points. Timing of the boost in employment varies with smallest firms reacting immediately and larger firms reacting four months later. The effects are driven by firms in the manufacturing sector. The results highlight the importance of the bank lending channel to stimulate employment in the short run, especially for smaller firms. Further, our estimates suggest that the effect of credit on employment could be amplified with policies that promote a more competitive corporate loan market. In chapter 2, we investigate the effects on Mexican exports due to an unexpected increase in Trade Policy Uncertainty (TPU). We use Donald Trump’s 2016 electoral upset as an exogenous change in Mexican firms’ expectations regarding NAFTA’s continuation. We observe no change in the trend of Mexican exports to the US, regardless of the firm’s level of exposure to NAFTA within industries. Using administrative data on employment, we find that firms did not change in size after the shock in TPU either. Finally, we analyze a subsample of firms most likely to be exposed to TPU: firms with exports highly dependent on NAFTA, with no diversification in their export portfolio, and exports that would pay a high tariff without NAFTA. These firms show a slight slowdown in their exports’ negative trend after Trump’s electoral upset compared to other firms exporting to the US. Still, the result is not significantly different from the exports of firms exporting to other industrialized countries.

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