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The short‐run and long‐run effects of trade openness on financial development: Some panel evidence for Europe

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  • Guglielmo Maria Caporale
  • Anamaria Diana Sova
  • Robert Sova

Abstract

This paper analyses the short‐ and long‐run effects of trade openness on financial development in a panel including data on 35 European countries over the period 2001–2019. For this purpose, it uses the pooled mean group (PMG) estimator for dynamic panels developed by Pesaran et al. (Journal of the American Statistical Association, 1999;94:621). The results differ depending on the income, governance and financial development level of the countries considered. In particular, it appears that in the middle‐income countries trade openness tends to strengthen financial development in the long run but to have an adverse effect in the short run. By contrast, in the case of high‐income countries with better institutions and a higher level of financial development, there is a positive and significant impact in the short run. Some policy implications of these findings are drawn.

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  • Guglielmo Maria Caporale & Anamaria Diana Sova & Robert Sova, 2023. "The short‐run and long‐run effects of trade openness on financial development: Some panel evidence for Europe," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 3891-3901, October.
    • Handle: RePEc:wly:ijfiec:v:28:y:2023:i:4:p:3891-3901
    DOI: 10.1002/ijfe.2626
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    More about this item

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities

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