TRADE OPENNESS, FINANCIAL DEVELOPMENT AND ECONOMIC GROWTH IN FRAGILE FIVE COUNTRIES (original) (raw)
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Financial development, trade openness and economic growth
This paper examines whether financial development and openness to international trade can play any positive role in reducing poverty in Bangladesh through their growth enhancing effect. The paper takes granted that growth reduce poverty and makes econometric test to ascertain whether financial development and trade openness cause growth. Standard Granger-causality test is employed for this purpose. Variables are found first difference stationary without having any co-integrating relationship as reported by Johansen co-integration test. As such Granger-causality test is carried out in first difference VAR. The paper does not find any causal relationship between trade openness and growth, and financial development and growth. This implies that financial development and trade openness do not reduce poverty through their effect on growth. However, bi-directional causal link evidenced between financial development and trade openness indicates that these two can contribute to poverty reduction directly through their mutual effect on each other.
Financial development, openness in financial services trade and economic growth
International Trade, Politics and Development
Purpose The purpose of this paper is to examine the relationship between financial development, openness in financial services trade and economic growth in BRICS countries for the period 1990–2012. Design/methodology/approach An index for financial development has been constructed using principal component analysis technique by including banking sector development, stock market development, bond market development and insurance sector development. For the robustness of the result, the long-run cointegrating relationship amongst the variables has been analyzed. Findings Overall financial development has a positive and significant impact on economic growth. To take the full advantage of openness in financial services trade, countries need to put more emphasis on the development of their stock markets, bond markets and the insurance sector. The result shows that openness in financial services trade has a positive impact on economic growth when the stock market, bond market and insuranc...
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The study investigate the relationship between the financial development, trade openness and economic growth in the Saudi Arabian economy from 1971 to 2012.The paper employed unit root tests, the co-integration test, the Granger Causality Test and the Vector Error Correction Model (VECM). The results from Johansen and Juselius co integration test underpins for the existence of long run relationship among the purported variables.Granger causality test exhibits unidirectional causality running from the trade openness to the economic growth in Saudi Arabia. The economic growth also causes financial development. The results manifest that combined causality exists among the variables. The study advocates for the acceleration of financial development in tandem with enhancing the ambit of trade openness for stimulating the economic growth in the country. JEL classification numbers: F43, 016, C32
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This study investigates the influence of financial liberalization on economic growth in developing countries indirectly through their effect on financial development. It selects the size and activity of the financial system as indicators of financial development. The general agreement on trade and services (GATS) is a very useful option for developing countries to consolidate their financial sector reform to give foreign investors more certainty about financial investment opportunities in the economies of developing countries. This study chooses the level of commitments taking by developing countries in the GATS in banking sector as a measure of financial liberalization. The main objective is to examine the effect of developing countries financial liberalization commitments at the GATS on economic growth through their effect on the size and activity of the financial sector. According to the analysis conducted, the results show no real effect of the level of commitments taking by dev...
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The aim of this chapter is to investigate the cointegration and causal relationship between financial development, trade openness, and economic growth in Turkey for the period of 1980-2012. To analyze the data, the bounds testing and Johansen-Juselius approaches to cointegration and Granger causality test based on vector error-correction model are employed. The cointegration tests suggest that there is a long-run relationship between the variables. The Granger causality test reveals long-run bidirectional causality between trade openness and economic growth. The findings also indicate unidirectional causality running from financial development to trade openness and economic growth in the long run as well as a bi-directional causality between financial development and economic growth in the short run. The results support supply-leading and trade-led growth hypotheses. Therefore, it can be suggested that Turkey can accelerate its economic growth by improving its financial systems and ...
The Relationship Between Financial Development and Economic Growth in Five Fragile Countries
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This study aimed to analyze the causality relationship between financial development and economic growth by using the data of the five fragile countries for the period 1980 to 2018. In this direction, the crosssection dependency is examined, and it is concluded that the cross-section is independent. Then, by performing the Delta homogeneity test, it is aimed to understand whether other countries are affected at the same level without a change occurring in any of the countries considered, and heterogeneity has been reached. Subsequently, the unit root test determines that the variables are stationary at different levels. Dumitrescu and Hurlin panel causality test is performed to test the causality relationship. As a result of the test, while it is seen that there is not a relationship between economic growth and financial development index, the examination with control variables confirmed that there is a causality relationship between economic growth and financial development. These results showed that the demand-leading hypothesis is valid in the five fragile countries. Finally, to understand the causality relationship more clearly in the study, the Hatemi-J asymmetric causality test was performed, and it is understood that the causality relationship between financial development and economic growth may differ according to country.
Financial Development,Trade Openness and Economics Growth in CLV Countries
Review Written by Mekong Institute This research analyzes the status and relationship of financial development, trade openness and economic growth by the ARDL approach of the Cambodia-Laos-Vietnam Development Triangle area or CLV. This group of countries has developed a finance sector and opened trade within the same period between the second half of the 1980s and the first half of 1990s. This period of time has seen a changed system from central economic planning to a marketoriented economy system open to more trade and investments compared to the past. This change has lead to higher economic growth in the CLV countries compared to other member countries in ASEAN. CLV also has comparative advantages in attracting more foreign direct investments in the agriculture and industry sectors. Currently, the number of banks and financial institutions of each country have increased in terms of quality and quantity and play an important service role in the financial sector in the economy of the countries. The ratio between the money supply as a component of GDP is rising and the volume of trade in each country tends to also increase in spite of the effects of the global financial crisis. However, the increase of such a level of financial development and trade openness is still not having a positively affect with regards to economic growth with the exception of some countries. For examples, in Cambodia, the long term financial development has an effect on real income per capita. However, in Laos, the openness of trade has a relationship with real income per capita or the growth of economy in both short and long terms. The reason for this is that fundamental and economic structures in each country are different.
International Finance and Growth in Developing Countries
World Bank Publications, 2008
Despite an abundance of cross-section, panel, and event studies, there is strikingly little convincing documentation of direct positive impacts of financial opening on the economic welfare levels or growth rates of developing countries. The econometric difficulties are similar to those that bedevil the literature on trade openness and growth, though if anything, they are more severe in the context of international finance. There is also little systematic evidence that financial opening raises welfare indirectly by promoting collateral reforms of economic institutions or policies. At the same time, opening the financial account does appear to raise the frequency and severity of economic crises. Nonetheless, developing countries continue to move in the direction of further financial openness. A plausible explanation is that financial development is a concomitant of successful economic growth, and a growing financial sector in an economy open to trade cannot long be insulated from cross-border financial flows. This survey discusses the policy framework in which financial globalization is most likely to prove beneficial for developing countries. The reforms developing countries need to carry out to make their economies safe for international asset trade are the same reforms they need to carry out to curtail the power of entrenched economic interests and liberate the economy's productive potential.
Economic Growth, Financial Development, and Trade Openness in Emerging Markets: Panel Approach
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This paper examines the long-run relationships of the growth model in 21 emerging countries and their alteration when countries in the considered panel vary. Panel estimations using quarterly data for the period 1995-2013 are made for different groups of emerging countries, such as the Full, F-10, Advanced, and Secondary. Additionally, the paper analyzes the changes in the relationships between growth, financial development, and trade openness in groups of emerging countries by taking the presence of structural shifts into account where they exist. Recent panel techniques are employed in this study. The empirical findings reveal that economic growth is highly related to financial development and trade openness only in emerging countries which are not exposed to structural shifts. However, the estimation results illustrated that economic growth is not related to financial development and trade openness in countries exposed to structural shifts. Division of the sample into more narrow...
Financial deepening, trade openness and economic growth in Latin America and the Caribbean
Applied Economics, 2011
This contribution investigates the direct and indirect causal interactions between financial deepening, trade openness and economic growth for 13 Latin American and Caribbean countries. Using a rather general approach to identify indicators for financial deepening and to detect Granger causality within a VAR/VECM framework, we find almost no evidence for the popular hypothesis of finance-led growth. Evidence of bidirectional finance-growth causality is stronger but mostly unstable in the long run. Most results indicate a demand-following or insignificant relationship between finance and growth in Latin America. This finding seems to be consistent with regard to the weakness and deficiencies of the region's financial systems. Further, there is no evidence that finance indirectly and unilaterally induces growth via the channel of trade openness. Thus, policies that prioritize financial and trade liberalization cannot be supported by this study. Instead, a holistic policy approach seems to be preferable that promotes the determinants of both real sector growth and financial development. As a result, financial factors may positively and significantly contribute to economic development in the region.