Financial depth and the trade openness-economic growth nexus: Evidence from cross-country panel data. Issue 1 (15th May 2017)

• Record Type: Journal Article
• Authors: Pradhan, Rudra P.; Arvin, Mak; Hall, John H.; Bennett, Sara E.; Bahmani, Sahar
• Is Part Of: Journal of economic and administrative sciences. Volume 33:Issue 1(2017)
• Page Start: 20
• Page End: 45
• Publication Date: 2017-05-15
• Subjects: Panel VAR -- Economic growth -- Trade openness -- Financial depth -- G-20 countries; Industrial management -- Periodicals; Economics -- Periodicals; Industrial management -- Arab countries -- Periodicals; Economics -- Arab countries -- Periodicals; 330.05
• DOI: 10.1108/JEAS-06-2016-0015
• Languages: English
• ISSNs: 1026-4116

Abstract

Abstract : Purpose: The purpose of this paper is to shed light on the age-old trade-and-economic-growth controversy. The authors do so by utilizing the data relating to the G-20 countries between 1988 and 2013. Design/methodology/approach: The authors seek to establish the formal statistical links between openness to trade and economic growth in the context of interactions with financial depth, gross capital formation, and foreign direct investment. The authors use a panel vector autoregressive model to obtain the estimates. The authors check for the robustness of the results. Findings: The authors find that all the variables are cointegrated. That is, there is a long-run equilibrium relationship between the variables. Moreover, trade openness, financial depth, gross capital formation, and foreign direct investment are all causative factors for the economic growth of the G-20 countries in the long run. At the same time, the short-run results demonstrate that there is a myriad of causal links between these variables. Practical implications: The decision makers in the G-20 countries wishing to encourage economic growth in the long run should pay close attention to trade openness, financial depth, gross capital formation, and foreign direct investment inflows to their countries. Originality/value: The authors study an important group of countries over a long span of time, using advanced panel data techniques. The results demonstrate that future studies on economic growth that do not simultaneously consider trade openness, financial depth, foreign direct investment, and gross capital formation will offer biased or misguided results.