The decline in the costs of multinational production (MP) has led some countries to specialize in innovation and others to specialize in production. To study the aggregate and distributional implications of this phenomenon, we develop a quantifiable general equilibrium model of trade and MP....

This paper shows that there are endogenous financial constraints arising from trade liberalization. We find that banks with a high share of loans to firms exposed to competition from China experience an increase in non-performing loans and a reduction in their credit capacity. The drop in credit...