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The Effects of Financial Development on Trade Openness: Evidence from Panel Threshold Regression Models

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  • KURUL, Zühal

    (Hacettepe University)

Abstract

This paper attempts to re-examine the finance-trade nexus and tests whether higher levels of financial development can reduce trade openness. Using static and dynamic panel threshold regression techniques based on 64 countries over the period of 1970-2014, this study shows that financial development fosters trade openness until a certain level of threshold is achieved and beyond that threshold level, further increases in financial development lead to decline in trade openness. The results of this study suggest that there is a need for developing alternative and new trade financing channels to increase trade openness as well as it provides a strong empirical support for trade-limiting effects of financial development. Hence, this study is possibly encouraging for policy makers to redesign trade enhancing policies.

Suggested Citation

  • KURUL, Zühal, 2021. "The Effects of Financial Development on Trade Openness: Evidence from Panel Threshold Regression Models," Bulletin of Economic Theory and Analysis, BETA Journals, vol. 6(1), pages 53-68, June.
    • Handle: RePEc:ris:betajl:0056
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    References listed on IDEAS

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    5. Thorsten Beck, 2003. "Financial Dependence and International Trade," Review of International Economics, Wiley Blackwell, vol. 11(2), pages 296-316, May.
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    More about this item

    Keywords

    Financial Development; Trade Openness; Panel Threshold Regression Models;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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