Does financial sector development affect the growth gains from trade opennes?

Nelson R. Ramírez-Rondán, Marco Terrones and Andrea Vilchez

MPRA Paper from University Library of Munich, Germany

Abstract: A sizeable literature suggests that financial sector development could be an important enabler of the growth benefits of trade openness. We provide a comprehensive analysis of how financial development can affect the relationship between trade openness and growth using a dynamic panel threshold model and an extensive dataset for a large sample of countries for the 1970-2015 period. We find that there is a financial development threshold in which trade openness has a positive and significant effect on economic growth. We also find that when splitting the sample into industrialized and non-industrialized countries, the financial development threshold that enables the growth benefits of trade is higher in the former group of countries than in the latter. This finding is consistent with the fact that the export composition of industrialized countries is tilted towards more capital-intensive finance-constrained goods.

Keywords: Trade openness; economic growth; threshold model; panel data. (search for similar items in EconPapers)
JEL-codes: C33 E51 F43 O41 (search for similar items in EconPapers)
Date: 2018-11
New Economics Papers: this item is included in nep-fdg, nep-gro, nep-int and nep-mac
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Does financial sector development affect the growth gains from trade openness? (2020)
Working Paper: Does financial sector development affect the growth gains from trade openness? (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:90385

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