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Historical evidence on the finance-trade-growth nexus


  • Bordo, Michael D.
  • Rousseau, Peter L.


We study linkages between financial development, international trade, and long-run growth using data since 1880 for 17 now-developed “Atlantic” economies and a set of cross country and dynamic panel data models. We find that finance and trade reinforce each other in data before 1930, but that these effects do not persist after the Second World War. Financial development affects growth positively throughout the sample period, while trade affects growth strongly and independently after 1945. We attribute the rising importance of trade to major post-World War II changes in tariffs and quantity restrictions associated with the GATT, the establishment of the European Common Market, and the gradual elimination of capital controls after 1973. The findings are robust to the use of ‘deep’ fundamentals such as legal origin and indicators of the political environment as instruments for financial development and trade. Financial development, however, links more closely than trade to these fundamentals.

Suggested Citation

  • Bordo, Michael D. & Rousseau, Peter L., 2012. "Historical evidence on the finance-trade-growth nexus," Journal of Banking & Finance, Elsevier, vol. 36(4), pages 1236-1243.
  • Handle: RePEc:eee:jbfina:v:36:y:2012:i:4:p:1236-1243 DOI: 10.1016/j.jbankfin.2011.11.012

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    References listed on IDEAS

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    Cited by:

    1. Gunther Capelle-Blancard & Claire Labonne, 2016. "More Bankers, More Growth? Evidence from OECD Countries," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 45(1), pages 37-51, February.
    2. Shahbaz, Muhammad & Bhattacharya, Mita & Kumar, Mantu, 2017. "Financial Development, Industrialisation, Urbanisation and the Role of Institutions: A Comparative Analysis between India and China," MPRA Paper 81609, University Library of Munich, Germany, revised 14 Sep 2017.
    3. Emmanuel Carré & Guillaume L’Œillet, 2017. "Une revue de la littérature récente sur le nexus finance-croissance après la crise : apports, limites et pistes de recherche," Revue d'économie financière, Association d'économie financière, vol. 0(3), pages 271-290.
    4. repec:eee:jcecon:v:45:y:2017:i:3:p:429-444 is not listed on IDEAS
    5. Kumar, Saten, 2015. "Regional integration, capital mobility and financial intermediation revisited: Application of general to specific method in panel data," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 36(C), pages 1-17.
    6. Narayan, Paresh Kumar & Narayan, Seema, 2013. "The short-run relationship between the financial system and economic growth: New evidence from regional panels," International Review of Financial Analysis, Elsevier, vol. 29(C), pages 70-78.
    7. Marques, Luís Miguel & Fuinhas, José Alberto & Marques, António Cardoso, 2013. "Does the stock market cause economic growth? Portuguese evidence of economic regime change," Economic Modelling, Elsevier, vol. 32(C), pages 316-324.
    8. Sane, Renuka & Halan, Monika, 2017. "Misled and mis-sold: financial misbehaviour in retail banks?," Journal of Comparative Economics, Elsevier, vol. 45(3), pages 429-444.
    9. Vithessonthi, Chaiporn, 2014. "The effect of financial market development on bank risk: evidence from Southeast Asian countries," International Review of Financial Analysis, Elsevier, vol. 35(C), pages 249-260.
    10. Mishra, Sagarika & Narayan, Paresh Kumar, 2015. "A nonparametric model of financial system and economic growth," International Review of Economics & Finance, Elsevier, vol. 39(C), pages 175-191.

    More about this item


    Financial development; Macroeconomic integration; Trade openness; Globalization; Political environment;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations
    • N2 - Economic History - - Financial Markets and Institutions


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