Iryna Stewen (University of Hamburg) - Trade Shock and Consumption Risk Sharing

BOFIT Seminar - Iryna Stewen (University of Hamburg) - Trade Shock and Consumption Risk Sharing

Co-author: Lilia Khabibulina (University of Zurich) 

Abstract:

Using micro-level data from the Consumer Expenditure Survey, we study how household consumption in the United States reacted to the China trade shock. From 1993 to 2007 household consumption declined due to the increase import competition from China. We show that it was the result of two concurrent effects: deterioration of household income and reduction of housing prices. However, this two-fold negative impact of Chinese import competition was dampened in states that liberalized their financial sector earlier. We argue that this smoothing effect on consumption, in particular on housing consumption, might have been achieved through better access to finance in states with more open financial markets.

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