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Does a Country's Openness to Trade and Capital Accounts Lead to Financial Development? Evidence from Malaysia

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  • Siong Hook Law

Abstract

This paper examines the role of trade openness and capital account openness in influencing financial development in Malaysia. The empirical findings using the bounds testing approach demonstrate that trade openness and capital account openness are positively significant determinants of financial development. However, there is no empirical support of the hypothesis that the simultaneous opening of both trade and capital accounts is necessary for financial development to take place. The evidence is valid for three banking sector development and two stock market development indicators.

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  • Siong Hook Law, 2008. "Does a Country's Openness to Trade and Capital Accounts Lead to Financial Development? Evidence from Malaysia," Asian Economic Journal, East Asian Economic Association, vol. 22(2), pages 161-177, June.
    • Handle: RePEc:bla:asiaec:v:22:y:2008:i:2:p:161-177
    DOI: 10.1111/j.1467-8381.2008.00273.x
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    2. Islam, Mollah Aminul & Liu, Haiyun & Khan, Muhammad Asif & Islam, Md Tariqul & Sultanuzzaman, Md Reza, 2021. "Does foreign direct investment deepen the financial system in Southeast Asian economies?," Journal of Multinational Financial Management, Elsevier, vol. 61(C).
    3. Sani Ibrahim, Saifullahi & Tanimu, Nuruddeen, 2015. "The Linkages between Trade Openness, Financial Openness and Economic Growth in Nigeria," MPRA Paper 87494, University Library of Munich, Germany, revised 06 Aug 2016.
    4. Zhu, Chaowei & Zhang, Fan & Zhang, Yuling, 2023. "Revisiting financial opening and financial development: A regulation heterogeneity perspective," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 181-197.
    5. Ashraf, Badar Nadeem & Qian, Ningyu & Shen, Yinjie (Victor), 2021. "The impact of trade and financial openness on bank loan pricing: Evidence from emerging economies," Emerging Markets Review, Elsevier, vol. 47(C).
    6. Umut Burak Geyikci & Serkan Çınar & Fatih Mehmet Sancak, 2022. "Analysis of the Relationships among Financial Development, Economic Growth, Energy Use, and Carbon Emissions by Co-Integration with Multiple Structural Breaks," Sustainability, MDPI, vol. 14(10), pages 1-11, May.
    7. Qianqian, Ding & Bashir, Uzma & Chunqiao, Tan, 2024. "The criticality of natural resources in financial development: Does geopolitical risk make any difference?," Resources Policy, Elsevier, vol. 89(C).
    8. Jawad Ahmad & Sania Zehraa & Noor Jehan, 2018. "Can Openness Hypothesis Improve Political Economy of Pakistans Financial Market?," Global Political Review, Humanity Only, vol. 3(1), pages 56-65, June.
    9. Wolde-Rufael, Yemane, 2009. "Re-examining the financial development and economic growth nexus in Kenya," Economic Modelling, Elsevier, vol. 26(6), pages 1140-1146, November.
    10. Menyah, Kojo & Nazlioglu, Saban & Wolde-Rufael, Yemane, 2014. "Financial development, trade openness and economic growth in African countries: New insights from a panel causality approach," Economic Modelling, Elsevier, vol. 37(C), pages 386-394.
    11. Lean, Hooi Hooi & Smyth, Russell, 2010. "Multivariate Granger causality between electricity generation, exports, prices and GDP in Malaysia," Energy, Elsevier, vol. 35(9), pages 3640-3648.
    12. Fu, Junhui & Liu, Yufang & Chen, Rongda & Yu, Xiaojian & Tang, Wen, 2020. "Trade openness, internet finance development and banking sector development in China," Economic Modelling, Elsevier, vol. 91(C), pages 670-678.
    13. Khan, Ashraf & Hassan, M. Kabir & Paltrinieri, Andrea & Bahoo, Salman, 2021. "Trade, financial openness and dual banking economies: Evidence from GCC Region," Journal of Multinational Financial Management, Elsevier, vol. 62(C).
    14. Yinghao, Liang & Jiajia, Yan, 2025. "The impact of the openness of trade and finance on financial development: Evidence from emerging markets," Emerging Markets Review, Elsevier, vol. 65(C).

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