Financial Integration through Production Networks

This paper studies how interconnected plants distribute additional liquidity from banks through the supply chain. Using a spatially segmented bank branch expansion rule in India, we fnd that direct exposure to additional bank credit allows plants to hold less precautionary cash and increase bank debt. Directly exposed plants pass through liquidity to customer plants as short-term trade credit. This liquidity spillover improves sales, employment, and productivity at customer plants. Structural estimation yields an average credit multiplier of 1.48. Our results underscore the credit multiplier effects of production networks and the importance of fnancial integration among frms with limited banking services. by Total Factor Revenue TFP for each plant Hsieh and Treated plants by a few years to in tier 3 population centers.

• Publication year

  2022

• Venue

  Social Science Research Network

• Publication date

  Unknown publication date

• Fields of study

  Not labeled

• Identifiers
  DOI 10.2139/ssrn.4155676
• External record

  Open on Semantic Scholar

• Source metadata

  Semantic Scholar

• No claims are published for this paper.

• No concepts are published for this paper.

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