The Effects of Financial Development on Trade Openness: Evidence from Panel Threshold Regression Models

Year 2021, , 53 - 68, 30.06.2021

Zühal Kurul

https://doi.org/10.25229/beta.887369

Cited By: 2

Abstract

This paper attempts to re-examine the finance-trade nexus and tests whether higher levels of financial development can reduce trade openness. Using static and dynamic panel threshold regression techniques based on 64 countries over the period of 1970-2014, this study shows that financial development fosters trade openness until a certain level of threshold is achieved and beyond that threshold level, further increases in financial development lead to decline in trade openness. The results of this study suggest that there is a need for developing alternative and new trade financing channels to increase trade openness as well as it provides a strong empirical support for trade-limiting effects of financial development. Hence, this study is possibly encouraging for policy makers to redesign trade enhancing policies.

Keywords

Financial Development, Trade Openness, Panel Threshold Regression Models

Finansal Gelişmişliğin Ticari Açıklık Üzerindeki Etkisi: Panel Eşik Değer Regresyon Modellerinden Kanıtlar

Abstract

Bu çalışmanın amacı finans-ticaret ilişkisini yeniden incelemek ve finansal gelişmişliğin ticari açıklık üzerinde azaltıcı etkilerinin olup olmadığını test etmektedir. Çalışmada 64 ülkeye ait 1970-2014 dönemini kapsayan verilerle ve statik ve dinamik panel eşik değer regresyon teknikleri kullanılarak elde edilen sonuçlara göre finansal gelişmişlik ticarete açıklığı belirli bir eşik düzeye kadar artırmakta birlikte bu eşik değerin aşılmasıyla finansal gelişmişlikteki iyileşmeler ticari açıklığın düşmesine neden olmaktadır. Çalışmanın sonuçları finansal gelişmişliğin ticaret azaltıcı etkilerine yönelik olarak güçlü ampirik kanıtlar sunmakla birlikte ticari açıklığı artırıcı yeni ve alternatif yolların geliştirilmesi gerekliliğini ortaya koymaktadır. Dolayısıyla bu çalışma politika yapıcıların ticareti genişletmeye yönelik politikaları yeniden tasarlanması için teşvik edicidir.

Keywords

Finansal Gelişmişlik, Ticarete Açıklık, Panel Eşik Değer Regresyon Modelleri, Finansal Gelişmişlik, Ticarete Açıklık, Panel Eşik Değer Regresyon Modelleri

References

• Alam, M. S., Selvanathan, E. S. & Hossain, M. (2019). Causal relationship between apparel exports and macroeconomic factors. Applied Economics, 51(25), 2687-2702. doi: 10.1080/00036846.2018.1527447
• Arcand, J. L., Berkes, E. & Panizza, U. (2015). Too much finance?. Journal of Economic Growth. 20(2), 105-148. doi:10.1007/S10887-015-91 15-2
• Arellano, M. & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, 68(1), 29-51. doi: 10.1016/0304-4076(94)01642-D
• Aslam, A., Boz, E., Cerutti, E., Poplawski-Ribeiro, M., & Topalova, P. (2018). The slowdown in global trade: a symptom of a weak recovery?. IMF Economic Review, 66(3), 440-479.
• Beck T., Kunt A. D. & Ross, L. (2000). A new database on financial development and structure’. World Bank Economic Review, 14, 597–605.
• Beck, T. (2002). Financial development and international trade: is there a link?. Journal of International Economics, 57(1), 107-131. doi: 10.1016/S0022-1996(01)00131-3
• Beck, T. (2003). Financial dependence and international trade, The World Bank, WPS2609.
• Beck, T., Degryse, H. & Kneer, C. (2014). Is more finance better? disentangling intermediation and size effects of financial systems. Journal of Financial Stability,10,50-64. doi: 10.1016/j.jfs.2013.03.005
• Becker, B., Chen, J. & Greenberg, D. (2012). Financial development, fixed costs, and international trade. The Review of Corporate Finance Studies, 2(1), 1-28. doi: 10.1093/rcfs/cfs005
• Berman, N. & Héricourt, J. (2008). Financial constraints and the margins of trade: evidence from cross-country firm-level data’. Journal of Development Economics, 93(2), 206-217. doi: 10.1016/j.jdeveco.2009.11.006
• Berthou, A. (2007). Credit constraints and zero trade flows: the role of financial development. (in) Empirical Investigations in International Economics, 4th Annual Conference. https://www.freit.org/EIIE/2007/Papers/berthou.pdf
• Caner, M., & Hansen, B. E. (2004). Instrumental variable estimation of a threshold model. Econometric Theory, 20(5), 813-843. doi: 10.1017/S026646660420501 1
• Do, Q. T. & Levchenko, A. A. (2007). Comparative advantage, demand for external finance, and financial development. Journal of Financial Economics, 86(3), 796-834. doi: 10.1016/j.jfineco.2006.11.004
• Gächter, M. & Gkrintzalis, I. (2017). The finance–trade nexus revisited: is the global trade slowdown also a financial story?. Economics Letters, 158, 21-25. doi: 10.1016/j.econlet.2017.05.037
• Giorgioni, G. (2017). Development Finance: Challenges and Opportunities. Springer.
• Hansen, B. E. (1999). Threshold effects in non-dynamic panels: estimation, testing, and inference. Journal of Econometrics, 93(2), 345-368. doi: 10.1016/S0304-4076(99)00025-1
• Hur, J., Raj M. & Riyanto, Y. E. (2006). Finance and trade: a cross-country empirical analysis on the impact of financial development and asset tangibility on international trade. World Development, 34(10), 1728-1741. doi: 10.1016/j.worlddev.2006.02.003
• Kletzer, K. & Bardhan, P. (1987). Credit markets and patterns of international trade. Journal of Development Economics, 27(1-2), 57-70. https://www.econstor.eu/bitstream/10419/160443/1/cdp520.pdf
• Kremer, S., Bick, A. & Nautz, D. (2013). Inflation and growth: new evidence from a dynamic panel threshold analysis. Empirical Economics, 44(2), 861-878. doi: 10.1007/s00181-012-0553-9
• Manova, K. (2008). Credit constraints, equity market liberalizations and international trade. Journal of International Economics, 76(1), 33-47. doi: 10.1016/j.jinteco.2008.03.008
• Manova, K., Wei, S. J. & Zhang, Z. (2015). Firm exports and multinational activity under credit constraints. Review of Economics and Statistics, 97(3), 574-588. doi: 10.1162/REST_a_00480
• Matsuyama, K. (2005). Credit market imperfections and patterns of international trade and capital flows. Journal of the European Economic Association, 3(2-3), 714-723. doi: 10.1162/jeea.2005.3.2-3.714
• Sare, Y. A. (2019). Threshold effects of financial sector development on international trade in Africa. International Journal of Finance & Economics, 1-27. doi: 10.1002/ijfe.1802
• Svaleryd, H. & Vlachos, J. (2005). Financial markets, the pattern of industrial specialization and comparative advantage: evidence from OECD countries. European Economic Review, 49(1), 113-144. doi: 10.1016/S0014-2921(03)00030-8
• Wynne, J. (2005). wealth as a determinant of comparative advantage. American Economic Review, 95(1), 226-254. doi: 10.1257/0002828053828626