Credit Composition, Output Composition, and External Balances

This paper builds on recent research examining the impact of finance on economic outcomes. Specifically, it asks whether credit extended to households and firms has an impact on the share of exports in gross domestic product and on the trade balance. The analysis finds that although household credit is not positively related to export shares or trade balances, firm credit is significantly related to both. The relationship with export shares is particularly strong and robust. Higher shares of credit going to firms means a higher export share in gross domestic product and stronger trade balances (any effect of credit on imports is subsumed by the larger effect on exports). Household credit has a negative or insignificant relationship with the trade balance and the share of exports in gross domestic product. Credit may also affect the choice between types of goods produced domestically, not just whether they are produced for export or domestic consumption. The paper finds that household credit has a negative relationship with the share of manufacturing in gross domestic product. Firm credit is positively associated with the share of manufacturing in gross domestic product, while the share of services does not seem to be affected by either.