Are Financial Development and Trade Openness Complements or Substitutes?

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Title:	Are Financial Development and Trade Openness Complements or Substitutes?
Authors:	Kim, Dong-hyeon;Lin, Shu-chin;Suen, Yu-bo
Contributors:	淡江大學經濟學系
Date:	2010-01
Issue Date:	2012-06-14 10:13:57 (UTC+8)
Publisher:	Chattanooga: Southern Economic Association
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.
Relation:	Southern Economic Journal 76(3), pp.827-845
DOI:	10.4284/sej.2010.76.3.827
Appears in Collections:	[Graduate Institute & Department of Economics] Journal Article

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