Softening the Blow: U.S. State-Level Banking Deregulation and Sectoral Reallocation after the China Trade Shock

U.S. state-level banking deregulation during the 1980s considerably dampened the fallout on local economies of the China trade shock a decade later. The reason: households in financially integrated areas could more easily borrow against their housing wealth to smooth consumption. This kept house prices and wages in the non-tradable sector up, facilitating labor reallocation away from manufacturing.