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The impact of the trade and financial openness on the economic growth in the countries from the Eastern Europe

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  • Macar Stoianov

    (Faculty of Finance and Banking, Bucharest University of Economics)

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    Abstract

    The impact of trade and financial openness can be measured by the sensitivity of the first moment of the economic growth. Taking into account the domestic conditions, this paper provides an empirical evaluation of the impact of globalization on the economic growth in the Eastern Europe. The data set includes a sample of 9 countries from the Eastern Europe, which are member states of the EU. This paper investigates the possibility of a non-monotonic relationship between the trade/financial openness and the economic growth. The analysis of non-linearity is done by allowing the effects of trade/financial integration to vary with the general level of economic development. The econometric models used in the analysis are the dynamic panel data models: the “Difference” GMM (Arellano-Bond (1991)) and the “System” GMM (Arellano-Bover(1995)/Blundell-Bond(1998)). These models are designed for a dynamic persistent panel data with few time periods and many individuals, with endogenous regressors, with fixed effect, with heteroskedasticity and auto-correlation within cross-sections. The main conclusions of this paper are that trade openness has a significant positive impact on the economic growth while the impact of the financial integration is a negative one. This analysis reveals a strong non-linearity of the impact of trade openness on the economic growth. The non-linearity of the financial openness impact on the economic growth couldn’t be deduced.

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    File URL: http://www.dofin.ase.ro/Working%20papers/Stoianov%20Macar/macar.stoianov.dissertation.pdf
    File Function: First version, 2008
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    Bibliographic Info

    Paper provided by Bucharest University of Economics, Center for Advanced Research in Finance and Banking - CARFIB in its series Advances in Economic and Financial Research - DOFIN Working Paper Series with number 14.

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    Date of creation: Jul 2008
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    Handle: RePEc:cab:wpaefr:14

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    Related research

    Keywords: financial openness; economic growth;

    References

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    1. M. Ayhan Kose & Eswar Prasad & Kenneth S. Rogoff & Shang-Jin Wei, 2006. "Financial Globalization: A Reappraisal," NBER Working Papers 12484, National Bureau of Economic Research, Inc.
    2. Michael W. Klein, 2003. "Capital Account Openness and the Varieties of Growth Experience," NBER Working Papers 9500, National Bureau of Economic Research, Inc.
    3. Yanikkaya, Halit, 2003. "Trade openness and economic growth: a cross-country empirical investigation," Journal of Development Economics, Elsevier, vol. 72(1), pages 57-89, October.
    4. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    5. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
    6. Salinas, Gonzalo & Aksoy, Ataman, 2006. "Growth before and after trade liberalization," Policy Research Working Paper Series 4062, The World Bank.
    7. David Roodman, 2006. "How to Do xtabond2," North American Stata Users' Group Meetings 2006 8, Stata Users Group.
    8. Ramey, Garey & Ramey, Valerie A, 1995. "Cross-Country Evidence on the Link between Volatility and Growth," American Economic Review, American Economic Association, vol. 85(5), pages 1138-51, December.
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