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Financial imperfections, product quality, and international trade

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  • Crinò, Rosario
  • Ogliari, Laura

Abstract

We study how financial imperfections affect product quality across countries and industries, and analyze the implications for trade flows and prices. To this purpose we assemble a unique data set, which contains estimates of export quality, financial development, and financial vulnerability, for all countries and manufacturing industries over the last three decades. We find the interplay between cross-country differences in financial frictions and cross-industry differences in financial vulnerability to be an important determinant of the geographical and sectoral variation in average product quality. We show that this effect mostly occurs along an intensive margin, whereby financial imperfections distort the quality of existing exports to a given destination market. Finally, we provide evidence that quality adjustments are an important mechanism through which financial development shapes the variation in trade flows and export prices across countries and industries.

Suggested Citation

  • Crinò, Rosario & Ogliari, Laura, 2017. "Financial imperfections, product quality, and international trade," Journal of International Economics, Elsevier, vol. 104(C), pages 63-84.
  • Handle: RePEc:eee:inecon:v:104:y:2017:i:c:p:63-84
    DOI: 10.1016/j.jinteco.2016.10.005
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    Cited by:

    1. Bastos, Paulo & Silva, Joana, 2010. "The quality of a firm's exports: Where you export to matters," Journal of International Economics, Elsevier, vol. 82(2), pages 99-111, November.
    2. Alessandra Bonfiglioli & Rosario Crinò & Gino Gancia, 2018. "Firms and Economic Performance: A view from Trade," Working Papers 1034, Barcelona Graduate School of Economics.
    3. repec:aea:aecrev:v:108:y:2018:i:2:p:353-92 is not listed on IDEAS
    4. Paulo Bastos & Joana Silva & Eric Verhoogen, 2018. "Export Destinations and Input Prices," American Economic Review, American Economic Association, vol. 108(2), pages 353-392, February.
    5. Silvia Del Prete & Stefano Federico, 2019. "Does trust among banks matter for bilateral trade? Evidence from shocks in the interbank market," Temi di discussione (Economic working papers) 1217, Bank of Italy, Economic Research and International Relations Area.
    6. Deng, Yuping & Wu, Yanrui & Xu, Helian, 2019. "Political connections and firm pollution behaviour : An empirical study," BOFIT Discussion Papers 4/2019, Bank of Finland, Institute for Economies in Transition.

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    Keywords

    Financial frictions; Financial vulnerability; Product quality; Trade flows and prices; Product-level data;

    JEL classification:

    • F1 - International Economics - - Trade

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