Does Financial Development Affect the Economic Growth Gains from Trade Openness?

There is a lack of empirical research on the specific relationship between financial institutions, capital account liberalization and trade-openness; but there is no particular and comprehensive study on the theme in case of Pakistan. This study investigates the importance of financial institutions, net financial capital inflows and trade-openness for financial sector's development. Further, it also examines the hypothesis by Rajan and Zingales (2003). In doing so, three approaches i.e. Johansen test, DOLS and ARDL bounds testing approach to cointegration have been applied for long-term relationship. The empirical results reveal that long-term relationship among variables is robust. Coefficient of net capital inflows is having positive impact on financial development. Trade openness is the main contributor to financial sector's development. On the other hand, financial institutions and economic growth also improve the efficiency of financial markets in the country. The rise in inflation declines the performance of financial sector.

This article is one of the first initial investigations to thoroughly examine the relationship between foreign divestment, financial development, and economic growth in African countries, providing empirical evidence to help policymakers align investment strategies and promote stable economic conditions in various African contexts. The objective of this paper is to examine the relationships between foreign divestment, financial development, and economic growth in African countries, emphasising the multifaceted socio-economic factors that affect these interactions. Employing a 2-step difference Generalised Method of Moments (GMM), we examine panel data from 35 African nations over a span of two decades. Data were sourced from the World Bank database, which facilitates a comprehensive analysis of economic indicators such as political stability, exchange rates, and trade openness. The findings demonstrate a negative correlation between foreign divestment and economic growth, while financial development exhibits a positive relationship with foreign divestment. These findings highlight the importance of economic policies that promote financial development while alleviating factors that lead to foreign divestment. Data constraints in specific African countries, especially in areas with limited financial disclosure, can affect the generalisability of the findings. Furthermore, economic and political factors in African countries are prone to instability, which can impact long-term forecast precision.

The effects of Internet usage, financial development and trade openness on economic growth in South Africa: A time series analysis

This paper investigates the impact of financial development and governance on the economic growth of BRICS economies for a sample period spanning from 1992 to 2017. Besides financial development and governance, this study considers the macroeconomic variables, trade openness, economic freedom, human capital formation, life expectancy, and inflation which have been considered the essential determinants of economic growth. Dynamic panel data models, more specifically, generalised method of moments techniques were used for the analysis. Data on governance was collected from World Bank reports. The empirical findings suggest that financial development is positively associated with economic growth. Good governance, control of corruption, and an effective rule of law affect economic growth positively. The findings from this study have implications for policymakers, corporate managers, and investors to create a stable and vibrant financial system.

Purpose — This study examines the impact of trade liberalization and economic growth on financial development and suggests policies to enhance financial stability.Method — The study utilizes an Autoregressive Distributed Lag Model to analyze the presence of co-movement within the context of trade openness and economic growth on financial development in Nigeria. Additionally, the technique allows for a dynamic assessment of the short and long term.Result — Our findings for Nigeria spanning from 1990 to 2021 demonstrate a positive long-term relationship between trade openness and financial expansion, while economic growth has a negative short-term impact on financial expansion.Contribution — This study contributes to the frontier of knowledge by uncovering the interplay among Nigeria's trade openness, economic prosperity, and financial development, which has been overlooked. Additionally, it offers insights into the specific dynamics and mechanisms operating within the Nigerian context by scrutinizing relevant economic indicators.

This paper examines empirically the extent to which financial development, financial integration and exchange rate regime (ERR) altogether influence positively economic growth in Africa. To achieve this, we build two baseline panel data samples of African countries and new expanded datasets spanning 1980-2015 using a small sample adjusted Generalized Method of Moments (GMM) estimator. To check the robustness of our results, we build two other panel samples by adding on the two previous panel data samples, data from emerging and developed countries and repeat the analysis. The results from the estimations suggest that financial development and financial integration influence positively and significantly economic growth, whereas exchange rate regime has no significant effect on economic performance, controlling for the usual growth- regression variables like trade openness, human capital, investment, governance and the lagged value of per capita GDP.

ABSTRACTUsing a panel vector auto-regressive model, we study interactions between trade openness, innovation, financial development, and economic growth in 27 OECD countries between 2001–2016. We focus on four-way linkage between these variables. Our empirical results show that there is a neutral relationship between economic growth and innovation, between innovation and financial development and between innovation and trade. Similarly, we have found a unidirectional relationship between economic growth and financial development and between financial development and trade. Finally, our results show a bidirectional relationship between economic growth and trade. Our empirical results show that among all, policy-makers need to invest more in human capital both in terms of developing entrepreneurial skills and education as well as creating better conditions for the development of creativity in the economy in order to improve national absorptive capabilities and develop the innovation potential of their economies.

Does regional integration matter for sustainable economic growth? Fostering the role of FDI, trade openness, IT exports, and capital formation in BRI countries

The purpose of this article is to empirically investigate the impact of economic growth, oil consumption, financial development, industrialization and trade openness on carbon dioxide (CO2) emissions, particularly in relation to major oil-consuming developing economies. This study utilizes annual data from 1980 to 2012 on a panel of 18 developing countries. Our empirical analysis employs robust panel cointegration tests and a vector error correction model (VECM) framework. The empirical results of three panel cointegration models suggest that there is a significant long-run equilibrium relationship among economic growth, oil consumption, financial development, industrialization, trade openness and CO2 emissions. Similarly, results from VECMs show that economic growth, oil consumption and industrialization have a short-run dynamic bidirectional feedback relationship with CO2 emissions. Long-run (error-correction term) bidirectional causalities are found among CO2 emissions, economic growth, oil consumption, financial development and trade openness. Our results confirm that economic growth and oil consumption have a significant impact on the CO2 emissions in developing economies. Hence, the findings of this study have important policy implications for mitigating CO2 emissions and offering sustainable economic development.

PurposeThe purpose of this paper is to empirically examine the effects of financial liberalization and trade openness on the economic growth of two countries, namely, Pakistan and India for the period 1985-2014.Design/methodology/approachThis study uses the autoregressive distributed lag technique, which allows mixed order of integration. In addition, it uses the principal component method to create an index for financial liberalization to examine how it affects the economic growth of the selected countries.FindingsThe findings reveal that in the short and long run, trade openness has positive effect on the Pakistan’s economic growth while the financial liberalization has positive impact only in the long run. In the case of India, both financial liberalization and trade openness positively and significantly influence the economic growth in the short and long run.Practical implicationsBy comparing the results of both countries, trade openness and financial liberalization increase the economic growth of India more than that of Pakistan. These results suggest that Pakistan should consider appropriate positive policies regarding financial liberalization and trade openness to achieve high and stable economic growth in the future.Originality/valueThis study creates financial liberalization index by using the principal component analysis method to explain the role of financial liberalization in the economic growth of Pakistan and India. In addition, it makes comparison of the results based on which country benefits most from the liberalization of trade and financial sectors. Only very few studies have examined these countries, yet their results have remained inconclusive as well.

This study examines the complement of financial development, trade openness, political stability and integrating government expenditure on Egyptian economy using time series annual data covering the period 1977 until 2018. This study used the ARDL-ECM estimates to determine the long and short-run cointegration between the series. The estimated results indicated that the financial development enhances growth in the long-run, while the political stability undermined the economic growth in the long-run. Interestingly, we found financial development, trade openness and government expenditure Granger cause economic growth in the short-run, while political stability Granger causes economic growth in both short and long-run; and a similar result with the causal relationship appeared in the strong causal relationship condition. Overall, this study showed that both financial development and trade openness gave evidence of causing growth, but the political stability does not. Thus, the reform policies should continue, while adopting measures to ensure that all the determinants are complementing to growth in Egypt as they are all pivotal and it is imperative for policy analysts to put into perspective when formulating policies as the study captures a novel political stability variable towards growth.

Given the complexity of the correlation of economic growth with financial development, and their interactive impacts on environmental quality, this study attempted to present new insights into indecisive outcomes from the contribution of financial development in determining the impressionability of environmental indicators under economic growth conditions. Previous studies only employed a single environmental indicator for analyzing the correlation between economic factors and environmental quality. However, six environmental indicators are adopted in this study to evaluate environmental quality and to reach major goals of this research. To this end, using 2-stage system generalized technique of moment estimator, the association of economic growth, energy consumption, financial development, environmental indicators, and trade openness is determined in selected OPEC countries for years 2010 to 2019. Findings indicated that accompanied by the effects of economic growth on any EFI, ANS, PN, and EPI variables, the financial development enhances such effect. This is while, the financial development would weaken the economic growth effect on the ESI variable. Regarding EVI, no significant association was observed. Regarding to ESI, EPI, and PN, trade openness applies a significantly positive impact on environmental quality; on the other hand, it has positive role in environmental degradation based on EFI and ANS. This is while, according to the EVI variable, trade openness has not meaningful impact on environmental status. Finally, energy use has significant and positive effects on environmental degradation in each of environmental indicators. However, this variable has not shown significant impact on EPI and ANS. Alternatively, findings indicated that financial development can be considered an important and key variable in improvement of the environmental quality due to the moderating role it plays relative to the negative economic growth effect on the environmental quality. At the end of this paper, some limitations are presented, and some suggestions for further studies are provided as well.

The study investigates the impact of financial openness (de facto) and trade openness on financial development for 26 sub-Saharan African countries over the period 1982–2016. A system Generalized Method of Moments methodological approach is utilised with 5-year averaged data. There is no evidence of the combined/joint impact of trade and financial openness towards financial development which disproves the existence of openness hypothesis by Rajan and Zingales [(2003). The great reversals: the politics of financial development in the twentieth century. Journal of Financial Economics 69(1), 5–50]. Comparatively, the region shows that it can positively benefit from trade openness to financial openness. Even though trade openness shows weak positive impact on financial development, the results are not robust, as they vary from one model to the other. Institutions show positive contribution towards financial development, but the impact is only significant towards private credit by banks. It is recommended that the institutional quality in the region be improved so that the region could fully benefit from international business, largely through investor protection.

This study aims to investigate the complex relationship between financial development and economic growth in Nigeria, examining the short-run and long-run dynamics through a comprehensive time series analysis spanning 1981 to 2023. The research seeks to evaluate the impact of financial development on economic growth while considering critical macroeconomic factors.The study employs a robust methodological approach, utilising the autoregressive distributed lag (ARDL) model complemented by bounds testing. The investigation incorporates control variables, including government expenditures, investment, trade openness, oil prices, and labour force, to provide a comprehensive economic assessment.The empirical results reveal a subtle relationship between financial development and economic growth in Nigeria. Despite confirming long-run cointegration among variables, the financial development index does not demonstrate statistically significant impacts on economic growth in either short- or long-run scenarios. However, the labour force emerges as the primary catalyst for economic expansion, with a 1% increase associated with a substantial 16.77% increase in real Gross Domestic Product (GDP) in the short term and a 1.48% increase in the long run.The study conclusion challenges conventional wisdom regarding the finance-growth nexus in developing economies. The findings highlight the critical role of human capital in Nigeria’s economic trajectory while revealing potential inefficiencies in financial sector development and capital allocation.This research contributes to the ongoing discourse on financial development and economic growth by providing a comprehensive, contemporary analysis of Nigeria’s economic landscape.

This article empirically investigates the interactions among economic growth, financial development, and trade openness through simultaneous equation systems. The identification and estimation of the systems rely on the methodology of identification through heteroskedasticity. The empirical results show that each of the three variables interacts in important ways. When controlling for the reverse causation, trade promotes economic growth in high-income, low-inflation, and nonagricultural countries but has a negative impact on growth in countries with the opposite attributes. Similarly, when accounting for the feedbacks from growth, banks and stock markets have different impacts on economic growth. While banking development is detrimental to output growth, stock market development is more favorable to growth in high-income, low-inflation, and nonagricultural countries. The data also reveal coexistence of a positive effect of financial development on trade and a negative effect of trade on financial development in poorer countries. In richer countries, financial development stimulates trade openness whereas trade has an ambiguous impact on financial development.