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Trade Openness, Capital Flows and Financial Development in Developing Economies

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  • Siong Hook Law

Abstract

This paper examines the impact of trade openness and capital flows on financial development in developing countries using a dynamic panel GMM estimation technique. The empirical results reveal that trade openness and capital flows are statistically significant determinants of financial development. Simultaneous opening of both the trade and capital accounts also appear to have positive impacts on financial development. The evidence also suggests that openness leads to improved financial development through institutional quality and competition channels. However, the institutional channel outperforms competition in ensuring the positive effects of openness on financial market depth in developing countries.

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  • Siong Hook Law, 2009. "Trade Openness, Capital Flows and Financial Development in Developing Economies," International Economic Journal, Taylor & Francis Journals, vol. 23(3), pages 409-426.
    • Handle: RePEc:taf:intecj:v:23:y:2009:i:3:p:409-426
    DOI: 10.1080/10168730903268398
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    References listed on IDEAS

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