IDEAS home Printed from https://ideas.repec.org/a/eme/jfeppp/v6y2014i4p362-375.html
   My bibliography  Save this article

Trade Openness, Financial Development Index and Economic Growth

Author

Listed:
  • Dogga Satyanarayana Murthy
  • Suresh Kumar Patra
  • Amaresh Samantaraya

Abstract

Purpose - – The purpose of this article is to examine the inter-relationship and direction of causality among three macroeconomic variables such as trade liberalization, financial development and economic growth. Design/methodology/approach - – The empirical analysis is based on the principal component analysis as method to construct financial development index (FDI), augmented Dickey–Fuller and Phillips–Perron tests as the unit root test, Johansen’s co-integration test and VECM for direction of causality in the long run among TOP, FDI and economic growth. Findings - – The empirical results confirmed that there exists a long-run association among trade openness, financial development and economic growth. This study has also found that there is bidirectional causality between financial development and growth. However, the causality runs from growth to finance is stronger than that from finance to growth. This study also observed unidirectional causality that runs from financial development and economic growth to trade openness. Research limitations/implications - – The policy implications that could be drawn from the present study is that, initiation of financial reforms to improve the size of financial system would lead to higher economic growth. Another key implication from this study is that because trade openness has no effect on both domestic financial sector development and output growth, it would be better to deploy the resources into creating a sustained domestic demand rather than concentrating more on the external front in general and trade openness in particular. Originality/value - – The study constructs a summary IFD for India by taking into account four broad financial development indicators for the period 1971-2012. The present paper also suggests that it would be better to deploy the resources to create a sustained domestic demand rather than concentrating more on the external front in general and trade openness in particular.

Suggested Citation

  • Dogga Satyanarayana Murthy & Suresh Kumar Patra & Amaresh Samantaraya, 2014. "Trade Openness, Financial Development Index and Economic Growth," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 6(4), pages 362-375, October.
    • Handle: RePEc:eme:jfeppp:v:6:y:2014:i:4:p:362-375
    DOI: 10.1108/JFEP-10-2013-0056
    as

    Download full text from publisher

    File URL: https://www.emerald.com/insight/content/doi/10.1108/JFEP-10-2013-0056/full/html?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://www.emerald.com/insight/content/doi/10.1108/JFEP-10-2013-0056/full/pdf?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1108/JFEP-10-2013-0056?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ritu Rani & Naresh Kumar, 2018. "Panel Data Analysis of Financial Development, Trade Openness, and Economic Growth: Evidence from BRICS Countries," Emerging Economy Studies, International Management Institute, vol. 4(1), pages 1-18, May.
    2. Kunofiwa Tsaurai, 2017. "Investigating the Relationship between Financial Development, Trade Openness and Economic Growth in Argentina: A Multivariate Causality Framework," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 13(3), pages 39-55, JUNE.
    3. Anwar, Amar & Iwasaki, Ichiro, 2022. "The Finance–Growth Nexus inAsia : A Meta-Analytic Approach," CEI Working Paper Series 2022-03, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    4. K. Siva Kiran Guptha & R. Prabhakar Rao, 2018. "The causal relationship between financial development and economic growth: an experience with BRICS economies," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 20(2), pages 308-326, October.

    More about this item

    Keywords

    Trade openness; Financial development index; Economic growth; VECM; F13; G21; O1; B23;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • B23 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Econometrics; Quantitative and Mathematical Studies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eme:jfeppp:v:6:y:2014:i:4:p:362-375. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Emerald Support (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.