Growing Beyond Trade : Export Shocks and the Spatial Expansions of Bank Branching

To what extent does trade liberalization affect the spatial expansion of the banking sector? This paper empirically examines the impact of tariff reductions for exporters on the spatial pattern of bank branching using geo-referenced information on branches of China’s state-owned and joint-stock banks. We construct prefecture-level tariff barriers faced by exporters from 2001 to 2007 and identify the impact by exploiting within-bank cross-prefecture variations in bank branching patterns. The empirical results suggest a positive and significant pass-through from export expansion to banking expansion. Specifically, a 10% export tariff reduction would induce a 2.84% increase in the local number of bank branches. Further analysis shows that export tariff changes also have “spillover” impacts for bank branching in adjacent prefectures. Mechanism tests suggest that changes in demand for credit due to export tariff changes can explain geographic variations in bank branching decisions