Essays in international trade and financial development

My dissertation investigates three separate issues pertaining to a country's financial development and international trade.;The first essay examines the combined effect of financial development and asset tangibility on the patterns of trade. It contributes to the literature on trade and finance by using country- and industry-specific measures of external finance share and asset tangibility for 25 industries in 10 countries between 1987 and 2006, instead of relying on U.S. industry characteristics to approximate the global industry characteristics. Further, I develop a theoretical model that incorporates financial frictions into an otherwise standard trade model to investigate the impact of financial development and asset tangibility on the demand and supply of external finance and export. Both the model and my empirical results demonstrate that industries with more tangible assets export relatively more from countries with higher levels of financial development.;The second essay shows that financial development has an ambiguous effect on export prices, since it not only reduces financing costs for a given quality level, but also induces costly quality upgrading. In a model with the elements of the O-ring production function of quality, we show that the effect of financial development on export prices first decreases and then increases with labor productivity. We confirm our predictions using detailed product-level U.S. import data between 1991 and 2007: financial development has a negligible or weakly negative effect on export prices for low-income countries, a strong negative effect for upper-middle-income countries, and a positive effect for high-income countries.;The third essay highlights the role of firm productivity, instead of cross-country labor productivity differences, to explain the differential effects of financial constraints. I show that the benefits of financial development to exporting firms increase in their productivity. More productive firms specialize in higher quality and thus stand to gain more from cheaper credit, which is required for quality upgrading. This implies that the quality and export gaps between more and less productive exporters increase as the financial system improves. An empirical analysis using export data at the HS 6-digit level for 36 countries between 1997 and 2007 supports my predictions.