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Revisit the nexus of trade openness and GDP growth: Does the financial system matter?

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  • Liang-Chou Huang
  • Shu-Hwa Chang

Abstract

This study empirically investigates whether financial development is associated with a stronger or weaker trade openness-growth relationship. Both linear and nonlinear econometric models are used with panel data for 46 countries from 1983 to 2007. While the new growth theory holds that international trade may spur economic growth by facilitating the adoption of new technology and specialization, the evidence of this study suggests that, to take full advantage of the technology transfer induced by international trade, countries need to develop their financial systems, especially their stock markets. The empirical results indicate that in countries with higher stock market development more trade openness enhances economic growth, while in countries with less stock market development the ability of trade to facilitate growth is feeble.

Suggested Citation

  • Liang-Chou Huang & Shu-Hwa Chang, 2014. "Revisit the nexus of trade openness and GDP growth: Does the financial system matter?," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 23(7), pages 1038-1058, October.
    • Handle: RePEc:taf:jitecd:v:23:y:2014:i:7:p:1038-1058
    DOI: 10.1080/09638199.2013.830638
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    Cited by:

    1. Md. Saiful Islam & Saleh Saud Alsaif & Talal Alsaif, 2022. "Trade Openness, Government Consumption, and Economic Growth Nexus in Saudi Arabia: ARDL Cointegration Approach," SAGE Open, , vol. 12(2), pages 21582440221, May.
    2. Mensi, Walid & Hammoudeh, Shawkat & Tiwari, Aviral Kumar & Al-Yahyaee, Khamis Hamed, 2020. "Impact of Islamic banking development and major macroeconomic variables on economic growth for Islamic countries: Evidence from panel smooth transition models," Economic Systems, Elsevier, vol. 44(1).
    3. Md. Saiful Islam, 2022. "Does the trade‐led growth hypothesis exist for South Asia? A pooled mean group estimation," Regional Science Policy & Practice, Wiley Blackwell, vol. 14(2), pages 244-257, April.
    4. Sumbal Fatima & Bateer Chen & Muhammad Ramzan & Qamar Abbas, 2020. "The Nexus Between Trade Openness and GDP Growth: Analyzing the Role of Human Capital Accumulation," SAGE Open, , vol. 10(4), pages 21582440209, November.
    5. Burçak Polat & Antonio Rodríguez Andrés, 2017. "Trade openness, labour market rigidity and economic growth: A dynamic panel data analysis," The Economic and Labour Relations Review, , vol. 28(4), pages 555-564, December.
    6. Imen Mohamed Sghaier, 2023. "Trade openness, financial development and economic growth in North African countries," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 1729-1740, April.
    7. Yaya Keho, 2017. "The impact of trade openness on economic growth: The case of Cote d’Ivoire," Cogent Economics & Finance, Taylor & Francis Journals, vol. 5(1), pages 1332820-133, January.
    8. Klona, Maria, 2021. "The Days After COVID-19: A Meta-Analysis on the Impact of Epidemics and Pandemics on Long-Term Macro-Economic Performance," American Business Review, Pompea College of Business, University of New Haven, vol. 24(1), pages 188-224, May.
    9. Ahmed, Khalid & Bhattacharya, Mita & Qazi, Ahmer Qasim & Long, Wei, 2016. "Energy consumption in China and underlying factors in a changing landscape: Empirical evidence since the reform period," Renewable and Sustainable Energy Reviews, Elsevier, vol. 58(C), pages 224-234.
    10. Adam Noga & Andrzej K. Koźmiński & Katarzyna Piotrowska & Krzysztof Zagórski, 2022. "Czynniki emocjonalne ograniczające inwestycje w europejskich krajach OECD," Ekonomista, Polskie Towarzystwo Ekonomiczne, issue 2, pages 172-189.

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