Are financial development and trade openness complements or substitutes?

Dong-Hyeon Kim, Shu Chin Lin, Yu Bo Suen

Research output: Contribution to journalArticle

23 Citations (Scopus)

Abstract

This article studies the long-and short-run relationships between financial development and trade openness. Using the pooled mean group estimator of Pesaran, Shin, and Smith (1999) for unbalanced panel data for 87 countries over the 1960-2005 period, our empirical results indicate that long-run complementarity between financial development and trade openness coexists with short-run substitutionarity between the two policy variables. But when splitting the data into OECD and non-OECD country groups, this finding can be observed only in non-OECD countries. For OECD countries, financial development has negligible effects on trade. In addition, we find nonlinearity in the relationship in that long-run responses of trade decrease with financial development. The article further finds coexistence of negative trade effects of financial fragility and positive trade impacts of financial depth.

Original languageEnglish
Pages (from-to)827-845
Number of pages19
JournalSouthern Economic Journal
Volume76
Issue number3
Publication statusPublished - 2010 Jan 1
Externally publishedYes

Fingerprint

Trade openness
Substitute
Financial development
Short-run
Coexistence
Financial depth
OECD countries
Empirical results
Complementarity
Financial fragility
Unbalanced panel data
Pooled mean group estimator
Nonlinearity

ASJC Scopus subject areas

  • Economics and Econometrics

Cite this

Are financial development and trade openness complements or substitutes? / Kim, Dong-Hyeon; Lin, Shu Chin; Suen, Yu Bo.

In: Southern Economic Journal, Vol. 76, No. 3, 01.01.2010, p. 827-845.

Research output: Contribution to journalArticle

Kim, Dong-Hyeon ; Lin, Shu Chin ; Suen, Yu Bo. / Are financial development and trade openness complements or substitutes?. In: Southern Economic Journal. 2010 ; Vol. 76, No. 3. pp. 827-845.
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