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Linkages between Financial Development and Openness: panel evidence from developing countries

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  • Simplice Anutechia, Asongu

Abstract

In this paper, we contribute to existing literature on financial development and openness by, sampling twenty-nine African countries with data spanning from 1987 to 2008. Using panel empirical techniques, we provide evidence of bi-directional causality between trade openness and financial openness; albeit, the former, bearing much more impact on the later. Neither capital openness nor trade openness, significantly account for financial development. Our results are robust to variable interaction via Principal Component Analysis. For sampled countries, policy towards trade openness should be effective in view of inviting private capital flows.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 26926.

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Date of creation: 20 Oct 2010
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Handle: RePEc:pra:mprapa:26926

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Keywords: Trade Openness; Financial Openness; Financial Development; Panel; Africa;

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  1. Kim, Dong-Hyeon & Lin, Shu-Chin & Suen, Yu-Bo, 2010. "Dynamic effects of trade openness on financial development," Economic Modelling, Elsevier, Elsevier, vol. 27(1), pages 254-261, January.
  2. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 1999. "A new database on financial development and structure," Policy Research Working Paper Series, The World Bank 2146, The World Bank.
  3. Baltagi, Badi H. & Demetriades, Panicos O. & Law, Siong Hook, 2009. "Financial development and openness: Evidence from panel data," Journal of Development Economics, Elsevier, Elsevier, vol. 89(2), pages 285-296, July.
  4. Rajan, Raghuram G. & Zingales, Luigi, 2003. "The great reversals: the politics of financial development in the twentieth century," Journal of Financial Economics, Elsevier, Elsevier, vol. 69(1), pages 5-50, July.
  5. Beck , Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2009. "Financial institutions and markets across countries and over time - data and analysis," Policy Research Working Paper Series, The World Bank 4943, The World Bank.
  6. Manole, Vlad & Spatareanu, Mariana, 2010. "Trade openness and income -- A re-examination," Economics Letters, Elsevier, Elsevier, vol. 106(1), pages 1-3, January.
  7. repec:ebl:ecbull:v:3:y:2004:i:33:p:1-9 is not listed on IDEAS
  8. Rudiger Dornbusch, 1992. "The Case for Trade Liberalization in Developing Countries," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 6(1), pages 69-85, Winter.
  9. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, Elsevier, vol. 115(1), pages 53-74, July.
  10. Venus Khim-Sen Liew, 2004. "Which Lag Length Selection Criteria Should We Employ?," Economics Bulletin, AccessEcon, vol. 3(33), pages 1-9.
  11. Romain Wacziarg & Karen Horn Welch, 2003. "Trade Liberalization and Growth: New Evidence," NBER Working Papers 10152, National Bureau of Economic Research, Inc.
  12. Jennifer Mbabazi, & Chris Milner, & Oliver Morrissey, . "Trade Openness, Trade Costs and Growth: Why Sub-Saharan Africa Performs Poorly," Discussion Papers 06/08, University of Nottingham, CREDIT.
  13. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, Elsevier, vol. 108(1), pages 1-24, May.
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Cited by:
  1. Asongu Simplice, 2010. "Bank Efficiency and Openness in Africa: Do Income Levels Matter?," Working Papers 10/001, African Governance and Development Institute., revised 18 Dec 2011.

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