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

  • Youssouf KIENDREBEOGO

    ()

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.

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Paper provided by CERDI in its series Working Papers with number 201235.

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Length: 28
Date of creation: 2012
Date of revision:
Handle: RePEc:cdi:wpaper:1398
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  1. Yongfu Huang & Jonathan Temple, 2005. "Does external trade promote financial development?," Bristol Economics Discussion Papers 05/575, Department of Economics, University of Bristol, UK.
  2. Joseph Francois & Miriam Manchin, 2007. "Institutions, Infrastructure, and Trade," IIDE Discussion Papers 20070401, Institue for International and Development Economics.
  3. Do, Quy-Toan & Levchenko, Andrei A., 2006. "Comparative advantage, demand for external finance, and financial development," Policy Research Working Paper Series 3889, The World Bank.
  4. R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
  5. Bose, Niloy & Murshid, Antu Panini & Wurm, Martin A., 2012. "The Growth Effects of Property Rights: The Role of Finance," World Development, Elsevier, vol. 40(9), pages 1784-1797.
  6. Fabian Valencia & Luc Laeven, 2012. "Systemic Banking Crises Database: An Update," IMF Working Papers 12/163, International Monetary Fund.
  7. Kenneth Kletzer and Pranab Bardhan., 1986. "Credit Markets and Patterns of International Trade," Economics Working Papers 8612, University of California at Berkeley.
  8. Svaleryd, Helena & Vlachos, Jonas, 2005. "Financial markets, the pattern of industrial specialization and comparative advantage: Evidence from OECD countries," European Economic Review, Elsevier, vol. 49(1), pages 113-144, January.
  9. Badi H. Baltagi & Panicos O. Demetriades & Siong Hook Law, 2008. "Financial Development and Openness: Evidence from Panel Data," Center for Policy Research Working Papers 107, Center for Policy Research, Maxwell School, Syracuse University.
  10. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
  11. Iacovone, Leonardo & Zavacka, Veronika, 2009. "Banking crises and exports : lessons from the past," Policy Research Working Paper Series 5016, The World Bank.
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