Good Connections : Bank Specialization and the Tariff Elasticity of Exports

In this paper, we show that exporters react more strongly to a cut in tariffs by a distant countrywhen their banks have already been specializing in funding exports to this country. To make ourcase, we build upon a theoretical model where an informational advantage provided by theexporter's bank results in a lower distribution cost in the destination country. We test theimplications of this model for French exporters using the 2011 free trade agreement between theEuropean Union and South-Korea as a quasi-natural experiment. We measure a bank'sspecialization in Korea using granular information on bank-firm credit lines and firm-level exportsin the years preceding the agreement. We assess how customers of different banks react to this tradeliberalization episode using detailed information on the bilateral tariff cuts and disaggregated dataon French export flows at the firm-product level. We find robust evidence that the specializedlenders help exporters to respond more strongly to changes in tariffs. The effect is strong for allfirms along the extensive margin, but only for less productive exporters along the intensive margin