This paper investigates the effects of financial development on firm export when lenders specialize in lending against different borrower activities. Using Italian microdata on manufacturing firms, we document that financial development driven by locally-focused banks can boost export participation but can depress the export sales of incumbent exporters. We explain these patterns through an industry equilibrium model of international trade with heterogeneous firms and banks. Locally-focused financial development eases the entry of credit-rationed firms into export by increasing the pledgeability of their domestic inventory assets; however, it also induces credit-satiated exporters to partly redirect their production capacity to domestic markets. Model calibration reveals that when financial development is too local, increased domestic output and export participation can come at the cost of reduced aggregate exports.
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