| Credit constraints hamper economic performance. Financially developed countries have been shown to grow faster and have relatively higher export volumes, particularly in sectors that require more outside finance or sectors with few collateralizable assets. Little is known, however, about the extent, direction of causality, and transmission mechanism of these effects. The first chapter of this dissertation demonstrates that the effect of financial development on trade volumes is causal and independent of the role of other institutions. Building on this result, the second chapter argues theoretically and empirically that credit constraints interact with firm heterogeneity and can thereby account for a rich set of international trade patterns, of which trade volumes is only one dimension. Finally, the last chapter proposes that credit constraints deter economic growth by discouraging long-term, productivity-enhancing investments. |
