Abstract
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.
Original language | English |
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Pages (from-to) | 827-845 |
Number of pages | 19 |
Journal | Southern Economic Journal |
Volume | 76 |
Issue number | 3 |
DOIs | |
Publication status | Published - 2010 Jan |
Externally published | Yes |
ASJC Scopus subject areas
- Economics and Econometrics