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Historical evidence on the finance-trade-growth nexus

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  • Bordo, Michael D.
  • Rousseau, Peter L.

Abstract

We study linkages between financial development, international trade, and long-run growth using data since 1880 for 17 now-developed “Atlantic” economies and a set of cross country and dynamic panel data models. We find that finance and trade reinforce each other in data before 1930, but that these effects do not persist after the Second World War. Financial development affects growth positively throughout the sample period, while trade affects growth strongly and independently after 1945. We attribute the rising importance of trade to major post-World War II changes in tariffs and quantity restrictions associated with the GATT, the establishment of the European Common Market, and the gradual elimination of capital controls after 1973. The findings are robust to the use of ‘deep’ fundamentals such as legal origin and indicators of the political environment as instruments for financial development and trade. Financial development, however, links more closely than trade to these fundamentals.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 36 (2012)
Issue (Month): 4 ()
Pages: 1236-1243

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Handle: RePEc:eee:jbfina:v:36:y:2012:i:4:p:1236-1243

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Web page: http://www.elsevier.com/locate/jbf

Related research

Keywords: Financial development; Macroeconomic integration; Trade openness; Globalization; Political environment;

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References

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Cited by:
  1. Marques, Luís Miguel & Fuinhas, José Alberto & Marques, António Cardoso, 2013. "Does the stock market cause economic growth? Portuguese evidence of economic regime change," Economic Modelling, Elsevier, vol. 32(C), pages 316-324.
  2. Gunther Capelle-Blancard & Claire Labonne, 2011. "More Bankers, More Growth? Evidence from OECD Countries," Working Papers 2011-22, CEPII research center.

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