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Testing the Validity of the Simultaneous Openness Hypothesis in Nigeria (1990–2015)

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  • Michael Adebayo Ajayi
  • Olufemi Adewale Aluko

Abstract

Since the seminal paper by Rajan and Zingales in 2003, a plethora of studies have been motivated to establish whether the simultaneous opening of trade and capital borders leads to financial sector development. We test whether the simultaneous openness hypothesis is valid for Nigeria, with a focus on the banking sector and stock market. Using annual data from 1990 to 2015 and an instrumental variable regression estimation technique, we show that the simultaneous increase of trade and financial openness limits banking sector and stock market development. Thus, there is no empirical evidence to validate the simultaneous openness hypothesis in Nigeria. It also shows that trade openness is more beneficial for banking sector and stock market development in Nigeria than financial openness.

Suggested Citation

  • Michael Adebayo Ajayi & Olufemi Adewale Aluko, 2019. "Testing the Validity of the Simultaneous Openness Hypothesis in Nigeria (1990–2015)," African Development Review, African Development Bank, vol. 31(1), pages 58-70, March.
    • Handle: RePEc:bla:afrdev:v:31:y:2019:i:1:p:58-70
    DOI: 10.1111/1467-8268.12363
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    Cited by:

    1. Simplice A. Asongu & Joseph Nnanna & Paul N. Acha-Anyi, 2020. "On the simultaneous openness hypothesis: FDI, trade and TFP dynamics in Sub-Saharan Africa," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 9(1), pages 1-27, December.
    2. Ibrahim, Muazu, 2020. "Effects of trade and financial integration on structural transformation in Africa: New evidence from a sample splitting approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 556(C).
    3. Simplice A. Asongu & Thales P. Yapatake Kossele & Joseph Nnanna, 2021. "Not all that glitters is gold: political stability and trade in Sub-Saharan Africa," Research Africa Network Working Papers 21/005, Research Africa Network (RAN).
    4. Aluko, Olufemi Adewale & Opoku, Eric Evans Osei, 2022. "The financial development impact of financial globalization revisited: A focus on OECD countries," International Economics, Elsevier, vol. 169(C), pages 13-29.

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