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Demand-following or supply-leading? Trade openness and financial development in China

Author

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  • Jiao-Jiao Fan
  • Ruzhi Xu
  • Chi Wei Su
  • Qing-Hua Shi

Abstract

This study explores the causal relationship between financial development and trade openness in China, using the research methodology namely bootstrap Granger full-sample causality test and sub-sample rolling-window estimation. The results reveal that there is a significant bidirectional relationship between financial development and trade openness in China, pointing out the existence of both ‘demand-following’ and ‘supply-leading’ hypotheses. Furthermore, their relationship fits well the fact that China has experienced economic restructuring and structural changes in the past few decades. As financial development improves trade openness robustly, the Chinese policymakers should further increase financial reform to promote trade development.

Suggested Citation

  • Jiao-Jiao Fan & Ruzhi Xu & Chi Wei Su & Qing-Hua Shi, 2018. "Demand-following or supply-leading? Trade openness and financial development in China," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 27(3), pages 314-332, April.
    • Handle: RePEc:taf:jitecd:v:27:y:2018:i:3:p:314-332
    DOI: 10.1080/09638199.2017.1390779
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    Cited by:

    1. Chow, Sheung Chi & Vieito, João Paulo & Wong, Wing Keung, 2019. "Do both demand-following and supply-leading theories hold true in developing countries?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 513(C), pages 536-554.
    2. Meshesha Demie Jima & Patricia Lindelwa Makoni, 2023. "Financial Inclusion and Economic Growth in Sub-Saharan Africa—A Panel ARDL and Granger Non-Causality Approach," JRFM, MDPI, vol. 16(6), pages 1-16, June.
    3. Lin Zhu & Fan Dong & Liangwen Hu, 2023. "Mechanisms of How Private Equity Drives Industrial Upgrade: An Empirical Study Based on China’s Panel Data," Sustainability, MDPI, vol. 15(3), pages 1-15, January.

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