The Relationship between Financial Development and Trade Openness

• Main Authors: Yu-Bo Suen, 孫育伯
• Other Authors: Ho-Chuan (River) Huang
• Format: Others
• Language: zh-TW
• Published: 2008
• Online Access: http://ndltd.ncl.edu.tw/handle/98171026628757116820

博士 === 淡江大學 === 財務金融學系博士班 === 96 === This paper empirically re-investigates the relationship between financial development and trade openness. Specifically, in the first essay, we utilize the pooled mean group estimation of Pesaran, Shin and Smith (1999) to analyze the long and short-run relationship between financial development and trade openness. Our empirical results confirmed with the unbalanced panel data for 87 countries over the 1960-2005 period show that a positive long-run relationship between financial development and trade openness coexists with a negative short-run relationship. But when splitting the data into OECD and non-OECD country groups, this finding can be observed only in non-OECD countries. For OECD countries, financial intermediary development has negligible effects on trade. In the second essay, we apply the identification through heteroskedasticity approach of Rigobon (2003) to analyze the two-way feedbacks between financial development and trade openness. Using unbalanced panel data for 47 countries over the 1960-2000 period, we find a strong, two-way causal relationship between the financial sector development and openness to trade. Particularly, a better developed financial sector induces faster openness to trade, whereas the greater openness in trade stymies the development in financial intermediation. The results are robust to different measures of trade openness used, to alternative data splits, and to distinct econometric methods.