Abstract
This paper empirically investigates the interaction between financial development and trade openness through simultaneous-equation systems. The identification and estimation of the systems rely on the methodology of identification through heteroskedasticity proposed by Rigobon (2003). Using a panel consisting of 70 countries over the period 1960-2007, we find a two-way causal relationship between financial development and trade openness. A better-developed financial sector induces higher openness to trade, while higher openness in goods market stymies financial development. And such findings hold well for low-income, high-inflation, or low-governance countries.
Original language | English |
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Pages (from-to) | 567-588 |
Number of pages | 22 |
Journal | Scottish Journal of Political Economy |
Volume | 58 |
Issue number | 4 |
DOIs | |
Publication status | Published - 2011 Sept |
Externally published | Yes |
ASJC Scopus subject areas
- Sociology and Political Science
- Economics and Econometrics