Dynamic effects of trade openness on financial development

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

Research output: Contribution to journalArticle

82 Citations (Scopus)

Abstract

This paper employs the Pooled Mean Group (PMG) approach of Pesaran et al. (1999) to study the dynamic effects of trade openness on financial development. The advantage of the PMG estimator over other dynamic panel econometric techniques is that it allows short-run coefficients, speeds of adjustment and error variances to vary across countries, with cross-country homogeneity restrictions only on long-run parameters. Our results spanning 88 countries over 1960-2005 show that a positive long-run relationship between trade openness and financial development coexists with a negative short-run relationship. But when splitting the data into different income or inflation groups, this finding is observed only in relatively low-income countries or high-inflation economies.

Original languageEnglish
Pages (from-to)254-261
Number of pages8
JournalEconomic Modelling
Volume27
Issue number1
DOIs
Publication statusPublished - 2010 Jan 1
Externally publishedYes

    Fingerprint

Keywords

  • Financial development
  • Pooled Mean Group estimator
  • Trade openness

ASJC Scopus subject areas

  • Economics and Econometrics

Cite this