The paper examines the impacts of trade and capital movement between North and
South, which differ in the quality of financial institution, on the productivity distribution and other characteristics of a financially-dependent industry. We find that financial imperfection causes
firm heterogeneity and that trade and capital movement are complements in the sense that trade in goods affects the productivity distribution only when accompanied by international capital movement (trade induces capital outflow from South when capital has been internationally mobile). We also
find that an international difference in financial development induces reciprocal foreign direct investment.
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