Template-Type: ReDIF-Paper 1.0
Author-Name: Rosario Crinò
Author-X-Name-First: Rosario
Author-X-Name-Last: Crinò
Author-Email: rosario.crino@unicatt.it
Author-Workplace-Name: Università Cattolica del Sacro Cuore
Author-Workplace-Name: Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore
Author-Name: Laura Ogliari
Author-X-Name-First: Laura
Author-X-Name-Last: Ogliari

Title: Financial Frictions, Product Quality, and International Trade
Abstract:An influential literature shows that product quality varies widely across countries and industries.
In this paper, we propose and test an explanation that rests on the interplay between cross-country differences
in financial frictions and cross-industry differences in financial vulnerability. We organize the
empirical analysis around a simple trade model with heterogeneous firms, endogenous output quality,
country heterogeneity in financial frictions, and industry heterogeneity in financial vulnerability.
We estimate the model using a unique data set, which contains estimates of export quality, measures of
financial development, and indicators of financial vulnerability for all manufacturing industries and
countries in the world over the last three decades. We find the interplay between financial frictions
and financial vulnerability to be a first-order determinant of the observed variation in product quality
across countries and industries. We also show that quality adjustments are a key mechanism through
which financial development affects aggregate trade flows and shapes the industrial composition of
countries exports.
Length: 50
Creation-Date: 2015-09
File-URL: http://dipartimenti.unicatt.it/economia-finanza-def030.pdf
File-Format: Application/pdf
File-Function: First version, 2015
Number: def030
Classification-JEL: F14, F36, G20. 
Keywords: Financial Imperfections; Product Quality; Trade Flows.
Handle: RePEc:ctc:serie1:def030