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The gravity of financial development

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  • Rafael Cezar

Abstract

The article empirically tests the link between financial constraints with the extensive (proportion of exporters) and the intensive (volume of exports) margins of international trade. The main contribution is the macroeconomic analysis of this relationship -- i.e. the investigation of the effect of finance on trade of all economic sectors combined -- which is further reaching than the manufactured-sector-based focus found in the current literature. The study is developed on the basis of a bilateral trade database on 104 countries between 1998 and 2007. The empirical section estimates a two-stage gravity equation using panel data and shows a positive impact of financial development on the marginal variation of the extensive margin. However, the estimate of the relationship between finance and the intensive margin shows an unexpected result. It finds inconsistent results demonstrating a relationship that is negative, positive or statistically null.

Suggested Citation

  • Rafael Cezar, 2015. "The gravity of financial development," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 24(5), pages 696-723, August.
    • Handle: RePEc:taf:jitecd:v:24:y:2015:i:5:p:696-723
    DOI: 10.1080/09638199.2014.955870
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    Cited by:

    1. Rafael Cezar, 2017. "Financial Development & Commercial Advantage," Global Economy Journal (GEJ), World Scientific Publishing Co. Pte. Ltd., vol. 17(1), pages 1-10, March.
    2. Sèna Kimm Gnangnon, 2022. "Financial development and tax revenue in developing countries: investigating the international trade channel," SN Business & Economics, Springer, vol. 2(1), pages 1-26, January.
    3. Gnangnon, Sèna Kimm, 2019. "Financial Development and Tax Revenue in Developing Countries: Investigating the International Trade and Economic Growth Channels," EconStor Preprints 206628, ZBW - Leibniz Information Centre for Economics.

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