Specialization in Bank Lending: Evidence from Exporting Firms

Abstract

We develop an empirical approach for identifying specialization in bank lending with granular data on borrower activities. We use it to analyze export market specialization with loan and export data for all exporters in Peru. We measure a bank's market of specialization using its relative concentration of lending towards exporters to a given country. A bank's country of specialization strongly predicts the correlation between an exporter's credit from the bank and its volume of exports to the country. Also, new borrowers from a specialized bank are more likely to begin exporting to the country of specialization (and vice-versa). Finally, exports demand and credit supply shocks disproportionately affect borrowing from the specialized bank and exports to the specialization country, respectively. The results imply that bank specialization substantially curtails competition and augments the real economy effect of bank credit supply disruptions.

Keywords: Bank specialization, Exports, Within-firm Estimator

JEL Classification: F14, G21