To read the full version of this content please select one of the options below:

Financial depth and the trade openness-economic growth nexus: Evidence from cross-country panel data

Rudra P. Pradhan (Vinod Gupta School of Management, Indian Institute of Technology Kharagpur, Kharagpur, India)
Mak Arvin (Department of Economics, Trent University, Peterborough, Canada)
John H. Hall (Department of Financial Management, University of Pretoria, Pretoria, South Africa)
Sara E. Bennett (School of Business, Lynchburg College, Lynchburg, Virginia, USA)
Sahar Bahmani (Department of Economics, University of Wisconsin at Parkside, Kenosha, Wisconsin, USA)

Journal of Economic and Administrative Sciences

ISSN: 1026-4116

Article publication date: 15 May 2017

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.

Keywords

Acknowledgements

The authors would like thank two anonymous reviewers and an associate editor of this journal for useful comments which have improved the quality of this paper.

Citation

Pradhan, R.P., Arvin, M., Hall, J.H., Bennett, S.E. and Bahmani, S. (2017), "Financial depth and the trade openness-economic growth nexus: Evidence from cross-country panel data", Journal of Economic and Administrative Sciences, Vol. 33 No. 1, pp. 20-45. https://doi.org/10.1108/JEAS-06-2016-0015

Publisher

:

Emerald Publishing Limited

Copyright © 2017, Emerald Publishing Limited