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Dynamic effects of trade openness on financial development

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  • Kim, Dong-Hyeon
  • Lin, Shu-Chin
  • Suen, Yu-Bo

Abstract

This paper employs the Pooled Mean Group (PMG) approach of Pesaran et al. (1999) to study the dynamic effects of trade openness on financial development. The advantage of the PMG estimator over other dynamic panel econometric techniques is that it allows short-run coefficients, speeds of adjustment and error variances to vary across countries, with cross-country homogeneity restrictions only on long-run parameters. Our results spanning 88 countries over 1960-2005 show that a positive long-run relationship between trade openness and financial development coexists with a negative short-run relationship. But when splitting the data into different income or inflation groups, this finding is observed only in relatively low-income countries or high-inflation economies.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 27 (2010)
Issue (Month): 1 (January)
Pages: 254-261

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Handle: RePEc:eee:ecmode:v:27:y:2010:i:1:p:254-261

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Web page: http://www.elsevier.com/locate/inca/30411

Related research

Keywords: Financial development Trade openness Pooled Mean Group estimator;

References

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Citations

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Cited by:
  1. Simplice Anutechia, Asongu, 2010. "Linkages between Financial Development and Openness: panel evidence from developing countries," MPRA Paper 26926, University Library of Munich, Germany.
  2. Menyah, Kojo & Nazlioglu, Saban & Wolde-Rufael, Yemane, 2014. "Financial development, trade openness and economic growth in African countries: New insights from a panel causality approach," Economic Modelling, Elsevier, vol. 37(C), pages 386-394.
  3. Simplice Anutechia Asongu, 2012. "Bank Efficiency and Openness in Africa: Do Income Levels Matter?," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 4(2), pages 115-122, December.
  4. Asongu Simplice, 2011. "Globalization, Financial Development and Regional Economic Dynamics: asymmetric panel evidence from Africa," Working Papers 11/008, African Governance and Development Institute..
  5. Gordan Stojić, 2012. "Using Fuzzy Logic for Evaluating the Level of Countries’ (Regions’) Economic Development," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 59(3), pages 293-310, June.
  6. Ayadi, Rym & Arbak, Emrah & Ben-Naceur, Sami & De Groen, Willem Pieter, 2013. "Benchmarking the Financial Sector in the Southern and Eastern Mediterranean Countries and Projecting 2030 Financial Sector Scenarios," CEPS Papers 7868, Centre for European Policy Studies.
  7. Simplice A, Asongu, 2010. "Financial development, trade openness and financial openness: do income levels matter for developing countries?," MPRA Paper 27441, University Library of Munich, Germany.

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