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Trade Openness and Economic Growth: The Role of Financial Development in ASEAN Countries

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  • Suwijak Suwanhirunkul
  • Prachaya Suwanhirunkul

Abstract

Financial development plays a crucial role in shaping the trade–growth nexus by facilitating efficient resource allocation, technological adoption and risk management. However, empirical evidence on its role in the Association of Southeast Asian Nations (ASEAN) economies remains scarce. This study addresses this gap by investigating how financial development moderates the impact of trade openness on economic growth in ASEAN countries. Using the least squares dummy variable corrected estimator, our findings confirm that trade openness enhances economic growth. Notably, we identify a threshold level of financial development: below this threshold, insufficient financial development weakens the positive impact of trade openness, while beyond it, this negative moderating effect disappears. These findings highlight the need to strengthen financial markets to at least the threshold level, ensuring that financial development supports rather than hinders economic growth. JEL Classification: F43; F36; O16; C33; F15

Suggested Citation

  • Suwijak Suwanhirunkul & Prachaya Suwanhirunkul, 2025. "Trade Openness and Economic Growth: The Role of Financial Development in ASEAN Countries," South Asian Journal of Macroeconomics and Public Finance, , vol. 14(2), pages 260-280, December.
    • Handle: RePEc:sae:smppub:v:14:y:2025:i:2:p:260-280
    DOI: 10.1177/22779787251380050
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    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F15 - International Economics - - Trade - - - Economic Integration

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