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- Title
Are Financial Development and Trade Openness Complements or Substitutes?
- Authors
Dong-Hyeon Kim; Shu-Chin Lin; Yu-Bo Suen
- 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.
- Subjects
MATHEMATICAL models of finance; FREE trade; MATHEMATICAL models of monetary policy; ORGANISATION for Economic Co-operation &; Development; MATHEMATICAL models of economic development; EMPIRICAL research
- Publication
Southern Economic Journal, 2010, Vol 76, Issue 3, p827
- ISSN
0038-4038
- Publication type
Article
- DOI
10.4284/sej.2010.76.3.827