Credit, Labor, and Political Unrest: Evidence from 1930s China
69 Pages Posted: 2 Sep 2017
Date Written: July 20, 2017
Can tight credit inflame political unrest? We study a natural experiment from 1930s China, where the 1933 U.S. Silver Purchase program acts as a shock to bank lending. We assemble a novel, hand-collected dataset of loan contracts between banks and individual firms, labor unrest episodes, and underground Communist Party penetration. We show that the Silver Purchase shock results in a severe credit contraction, and that firms borrowing from banks with a larger exposure to the shock experience increased labor unrest and Communist Party penetration among their workers. These findings contribute to understanding the socio- political consequences of credit.
Keywords: Silver Purchase program, bank lending, political unrest, financial history
JEL Classification: G01, G21, N15, N25
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