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The E ffects of Financial Development on Trade Performance and the Role of Institutions

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  • Youssouf KIENDREBEOGO

Abstract

This paper aims to address the empirical question of whether a country's level of manufacturing trade is affected by its financial sector development and to investigate the role of institutions in this relationship. Countries endowed with better-developed financial systems tend to specialize in industries that rely on external finance in production. This effect is likely to be stronger in countries with high-quality institutions. Using pure cross-sectional and panel specifications on a sample of 75 countries over the period 1971-2010, we find that financial development strongly and robustly exerts a positive effect on manufacturing exports, even after controlling for the effect of banking crises. Furthermore, institutional quality is found to have a favorable effect on the extent to which finance influences manufacturing trade, suggesting a multiplicity of experiences of the largest exporters of manufactured goods.

Suggested Citation

  • Youssouf KIENDREBEOGO, 2012. "The E ffects of Financial Development on Trade Performance and the Role of Institutions," Working Papers 201235, CERDI.
    • Handle: RePEc:cdi:wpaper:1398
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    Cited by:

    1. Mohammed Ahmed, Abdullahi, 2019. "China’s Bilateral Currency Swap Agreement: Strategic Move to Foster Political and Financial Hegemony," MPRA Paper 109879, University Library of Munich, Germany, revised 08 Oct 2019.
    2. Muzammil, Muhammad, 2015. "Impact of Financial Development on Trade Balance: An ARDL Cointegration and Causality Approach for Pakistan," MPRA Paper 68587, University Library of Munich, Germany.
    3. Muhammad Ahad, 2017. "Impact of Financial Development on Trade Balance: An ARDL Cointegration and Causality Approach for Pakistan," Global Business Review, International Management Institute, vol. 18(5), pages 1199-1214, October.
    4. Muhammad Asif Shamim; Syed Tehseen Jawaid; Farooq-E-Azam Cheema, 2019. "How does financial development impact trade openness? Evidence from export performance of Pakistan," South Asian Journal of Management Sciences (SAJMS), Iqra University, Iqra University, vol. 13(1), pages 74-98, Spring.

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    More about this item

    Keywords

    Financial Development; Manufacturing Exports; Comparative Advantages; Institutional Quality;
    All these keywords.

    JEL classification:

    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • F10 - International Economics - - Trade - - - General
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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