IDEAS home Printed from https://ideas.repec.org/p/cdi/wpaper/1397.html
   My bibliography  Save this paper

Understanding the Causal Links between Financial Development and International Trade

Author

Listed:
  • Youssouf KIENDREBEOGO

    ()

Abstract

This paper analyses the causal relationship between financial development and international trade using data of 21 developed and developing countries from 1961 to 2010 and appropriate time series techniques that allow us to decompose the source of causation according to the order of integration of the variables and the possible presence of a cointegrating relationship. We analyze in detail the issue of integration of our series in order to use the most appropriate stationarisation techniques on non-stationary series. We also account for the major problems encountered in empirical studies on issues of causality link between finance and the real economy. Our results provide little support to the view that financial development is a leading factor in the participation of countries in international trade. Mainly, we find a bi-directional relationship between the levels of finance and trade. Moreover, it appears that the causality pattern varies across countries with different levels of economic development. Overall, the development of the financial sector contributes more to the causal relationship in the developing countries than in the developed countries. These results are robust to the use of an alternative method of testing for causality and to the use of alternative indicators or financial development and international trade.

Suggested Citation

  • Youssouf KIENDREBEOGO, 2012. "Understanding the Causal Links between Financial Development and International Trade," Working Papers 201234, CERDI.
  • Handle: RePEc:cdi:wpaper:1397
    as

    Download full text from publisher

    File URL: http://publi.cerdi.org/ed/2012/2012.34.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Yuanzheng Cao & Yingyi Qian & Barry R. Weingast, 1999. "From federalism, Chinese style to privatization, Chinese style," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 7(1), pages 103-131, March.
    2. Philippe DULBECCO & Jean-Pierre ALLEGRET & COURBIS, 1999. "Financial Liberalisation and Stability of the Financial System in Emerging Markets: the institutional dimension of financial crises," Working Papers 199918, CERDI.
    3. North, Douglass C, 1994. "Economic Performance through Time," American Economic Review, American Economic Association, pages 359-368.
    4. Stavros Ioannides, 1992. "The Market, Competition And Democracy," Books, Edward Elgar Publishing, number 240, April.
    5. J. Stiglitz, 1998. "More Instruments and Broader Goals: Moving toward the PostWashington Consensus," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 8.
    6. Naughton, Barry, 1994. "Chinese Institutional Innovation and Privatization from Below," American Economic Review, American Economic Association, vol. 84(2), pages 266-270, May.
    7. Hellwig, Martin, 1989. "Asymmetric information, financial markets, and financial institutions Where are we currently going?," European Economic Review, Elsevier, vol. 33(2-3), pages 277-285, March.
    8. Chang, Ha-Joon & Park, Hong-Jae & Yoo, Chul Gyue, 1998. "Interpreting the Korean Crisis: Financial Liberalisation, Industrial Policy and Corporate Governance," Cambridge Journal of Economics, Oxford University Press, vol. 22(6), pages 735-746, November.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Financial Development; Manufacturing Trade; Granger Causality test; Error Correction Model;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • 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

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:cdi:wpaper:1397. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Vincent Mazenod). General contact details of provider: http://edirc.repec.org/data/ceauvfr.html .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.