TY - JOUR
T1 - Are financial development and trade openness complements or substitutes?
AU - Kim, Dong Hyeon
AU - Lin, Shu Chin
AU - Suen, Yu Bo
PY - 2010/1
Y1 - 2010/1
N2 - This article studies the long-and short-run relationships between financial development and trade openness. Using the pooled mean group estimator of Pesaran, Shin, and Smith (1999) for unbalanced panel data for 87 countries over the 1960-2005 period, our empirical results indicate that long-run complementarity between financial development and trade openness coexists with short-run substitutionarity between the two policy variables. 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 development has negligible effects on trade. In addition, we find nonlinearity in the relationship in that long-run responses of trade decrease with financial development. The article further finds coexistence of negative trade effects of financial fragility and positive trade impacts of financial depth.
AB - This article studies the long-and short-run relationships between financial development and trade openness. Using the pooled mean group estimator of Pesaran, Shin, and Smith (1999) for unbalanced panel data for 87 countries over the 1960-2005 period, our empirical results indicate that long-run complementarity between financial development and trade openness coexists with short-run substitutionarity between the two policy variables. 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 development has negligible effects on trade. In addition, we find nonlinearity in the relationship in that long-run responses of trade decrease with financial development. The article further finds coexistence of negative trade effects of financial fragility and positive trade impacts of financial depth.
UR - http://www.scopus.com/inward/record.url?scp=76949085709&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=76949085709&partnerID=8YFLogxK
U2 - 10.4284/sej.2010.76.3.827
DO - 10.4284/sej.2010.76.3.827
M3 - Article
AN - SCOPUS:76949085709
SN - 0038-4038
VL - 76
SP - 827
EP - 845
JO - Southern Economic Journal
JF - Southern Economic Journal
IS - 3
ER -