Asymmetric effects of financial development on export price and quality across countries

We derive two novel predictions: financial development has a more pronounced effect on quality in countries with greater labor productivity, and its effect on export prices is U-shaped in labor productivity. We confirm our predictions empirically and show that the negative effect of financial development on export prices is greatest in middle-productivity countries, while its positive effect on quality is strongest in the most productive countries. Our findings contribute to the literature on the poverty trap: we argue that improving the quality of financial institutions alone is unlikely to boost quality or lower prices of the poorest countries.