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Article
Publication date: 2 November 2021

Mohammed Mizanur Rahman, Md. Mominur Rahman, Mahfuzur Rahman and Md. Abdul Kaium Masud

The purpose of this paper is to examine the impact of trade openness on the cost of financial intermediation and bank performance. Developed and developing countries are…

Abstract

Purpose

The purpose of this paper is to examine the impact of trade openness on the cost of financial intermediation and bank performance. Developed and developing countries are currently pursuing trade openness to achieve higher bank performance with less intermediation costs.

Design/methodology/approach

In attaining the study's objectives, several regression methodologies were employed (i.e. system generalized method of moments (GMM), fixed effect, pooled ordinary least squares (OLS) and vector error correction model (VECM)). The authors tested the hypothesis on data of 885 banks from BRICS countries, which span 18 years (2000–2017).

Findings

The results from this robust study showed that embedding higher trade openness reduces financial intermediation costs and improves banks' performance. The results remain robust following the use of different estimation methods and alternative variables as proxies. In addition, results were still valid upon considering bank level, industry level and country level as control variables. It was also observed that the relation pattern holds its rigidity during “good” and “bad” times (i.e. the global financial crisis).

Originality/value

The results provide better references for bank regulators, academics and policymakers to take advantage of the low financial intermediation costs resulting from trade openness.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

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Article
Publication date: 22 June 2021

Reenu Kumari, Malik Shahzad Shabbir, Sharjeel Saleem, Ghulam Yahya Khan, Bilal Ahmed Abbasi and Lydia Bares Lopez

This study examines the long-term and causal relationship among foreign direct investment (FDI) inflows, trade openness and economic growth from India.

Abstract

Purpose

This study examines the long-term and causal relationship among foreign direct investment (FDI) inflows, trade openness and economic growth from India.

Design/methodology/approach

This study has used annual time series data from the period 1985–2018 and applied the Johansen cointegration and vector autoregression (VAR) model.

Findings

The results of Johansen's cointegration confirm no long-term relationship among all the above three variables. Further, the results of VAR Granger causality indicate that FDI causes economic growth and economic growth causes FDI, which confirms the bi-directional causality. In contrast, this study found that there is no bi-directional causality between trade openness and economic growth.

Social implications

Through this study, the government could take the decisions related to foreign investment after adopting more trade openness because the study results revealed that if India follows more trade openness, then how FDI will flow (upward and downward). With impulse analysis, researchers, government and policymakers take the decision-related FDI inflows for the forthcoming ten years after 2018.

Originality/value

This study has found the most exciting results from the impulse functions of FDI inflows, trade openness and economic growth, which showed the situation of these three variables as increase and decrease in the forthcoming ten years.

Details

South Asian Journal of Business Studies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2398-628X

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Article
Publication date: 1 April 2008

Gustavo A. Barboza and Sandra R. Trejos

Free trade reform promotes and consolidates businesses’ orientation to international markets. Using a sample of twenty Latin American countries, this study finds support…

Abstract

Free trade reform promotes and consolidates businesses’ orientation to international markets. Using a sample of twenty Latin American countries, this study finds support for the hypothesis that higher revealed trade openness implies faster economic growth. However, at low output growth levels, increased revealed trade openness does not translate to faster output growth. Why more trade does not necessarily imply faster growth at all levels of revealed trade openness growth remains a conundrum. Failure to derive faster economic growth may compromise the prospects for sustainable trade reforms and thus the consolidation of new business ventures as engines for further growth.

Details

Multinational Business Review, vol. 16 no. 4
Type: Research Article
ISSN: 1525-383X

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Article
Publication date: 2 October 2017

Rana Muhammad Adeel-Farooq, Nor Aznin Abu Bakar and Jimoh Olajide Raji

The 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…

Abstract

Purpose

The 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/approach

This 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.

Findings

The 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 implications

By 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/value

This 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.

Details

South Asian Journal of Business Studies, vol. 6 no. 3
Type: Research Article
ISSN: 2398-628X

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Article
Publication date: 17 September 2019

Pami Dua and Niti Khandelwal Garg

The study aims to empirically investigate the trends and determinants of labour productivity of the two broad sectors –industry and services – and their components…

Abstract

Purpose

The study aims to empirically investigate the trends and determinants of labour productivity of the two broad sectors –industry and services – and their components, namely, manufacturing and market services sectors, in the case of major developing and developed economies of Asia-Pacific over the period 1980-2014 and make a comparison thereof.

Design/methodology/approach

The study uses econometric methodology of panel unit root tests, panel cointegration and group-mean full modified ordinary least squares (FMOLS).

Findings

The study finds that while capital deepening, government size, institutional quality, productivity of the other sector and financial openness affect productivity of all the sectors significantly, the impact of human capital and trade openness varies across sectors in the case of developing economies. Furthermore, the impact of technological progress becomes significant in the post-liberalization reforms period in the developing economies. The study further finds that capital deepening, human capital, government size, institutional quality, productivity of the other sector, government size and trade openness are significant determinants of productivity of all sectors of developed economies under consideration. However, the impact of technological progress is stronger for manufacturing sector than services and its components. Furthermore, while both equity and debt liabilities (as measures of financial openness) influence sectoral productivity of industry and manufacturing sectors positively and significantly in case of developed economies, only equity liabilities have a significant influence on the productivity of developing economies. This may indicate existence of more developed financial markets in the case of developed economies.

Originality/value

The study identifies important structural differences in determinants of productivity both across sectors and across developing and developed economies of Asia-Pacific.

Details

Indian Growth and Development Review, vol. 13 no. 1
Type: Research Article
ISSN: 1753-8254

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Article
Publication date: 26 August 2014

Nedal Al-Fayoumi and Bana Abuzayed

– The purpose of this paper is to examine if the simultaneous openness to trade and capital account can promote financial sector development.

Abstract

Purpose

The purpose of this paper is to examine if the simultaneous openness to trade and capital account can promote financial sector development.

Design/methodology/approach

Based on a sample of 12 Arab countries over the period from 1985 to 2011, the data were analyzed using the dynamic and static panel data analysis. In particular, the authors apply three estimate techniques: the generalized method of moments, fixed effects and random effects.

Findings

The empirical results do not support the simultaneous openness hypothesis. Even trade and financial openness have an important separate role in enhancing financial sector development; their interaction effect is harmful. This empirical evidence indicates that opening Arab countries to both trade and capital account will not necessarily promote financial sector development.

Research limitations/implications

Some Arab countries are not included in the study sample because of the lack of data.

Practical implications

The main implication of this study is: opening Arab countries for trade and capital account at the same time will not improve the development of financial sector.

Social implications

The paper examines one of the most important issues in developing countries; where, the people want to know if the country openness to trade and finance will generate a social and economic welfare for them.

Originality/value

This study can be considered as one of the rare studies that examine the simultaneous openness issue in the developing countries. It recommends regulators and policy makers to take gradual steps toward adopting trade and financial openness in the Arab countries.

Details

EuroMed Journal of Business, vol. 9 no. 3
Type: Research Article
ISSN: 1450-2194

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Article
Publication date: 8 May 2018

Muhammad Tahir, SAF Hasnu and Mario Ruiz Estrada

Trade openness plays a significant role in the growth process of countries. The purpose of this paper is to examine the impact of macroeconomic determinants on the trade

Abstract

Purpose

Trade openness plays a significant role in the growth process of countries. The purpose of this paper is to examine the impact of macroeconomic determinants on the trade openness of countries.

Design/methodology/approach

The study focuses on the South Asian Association for Regional Cooperation (SAARC) member countries and the data used were from 1971 to 2011. Panel data econometrics techniques and two stages least square method (TSLS) are used to carry out empirical analysis and robustness testing.

Findings

The main finding of the paper is that macroeconomic determinants such as investment both in physical and human capital and per capita gross domestic product (GDP) positively affect trade openness. Further, the size of labour force and currency exchange rate has also impacted trade openness negatively and significantly.

Practical implications

It implies that efficient macroeconomic management matters for higher trade openness. The sampled developing countries are suggested to pay favourable attention to macroeconomic variables if they want to grow in the long run through outward-oriented policies.

Originality/value

This paper is an original contribution in the context of SAARC countries by focusing on the relationship between macroeconomic determinants and trade openness.

Details

Journal of Asia Business Studies, vol. 12 no. 2
Type: Research Article
ISSN: 1558-7894

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Article
Publication date: 1 June 2015

Muhammad Tahir and Toseef Azid

This paper aims to establish a relationship between trade openness and economic growth in the context of the developing countries. This study has proposed a new measure of…

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Abstract

Purpose

This paper aims to establish a relationship between trade openness and economic growth in the context of the developing countries. This study has proposed a new measure of trade openness to the literature, as the available measures are flawed.

Design/methodology/approach

Empirical analyses are carried out with the help of panel econometric techniques.

Findings

The main finding of the paper is that the relationship between trade openness and economic growth is positive and statistically significant for developing countries. Besides trade openness, other determinants of economic growth such as investment and labour force are also significantly related with economic growth and carry expected coefficients. Further, it is found that frequent fluctuations in prices are detrimental to long-run economic growth.

Practical implications

Therefore, the developing countries are suggested to speed up the process of trade liberalization and also pay favourable attention to other determinants of economic growth to achieve high economic growth.

Originality/value

The authors have used a new measure of trade openness apart from the conventional trade volume measure of trade openness.

Details

Journal of Chinese Economic and Foreign Trade Studies, vol. 8 no. 2
Type: Research Article
ISSN: 1754-4408

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Article
Publication date: 20 April 2012

Christopher J. Coyne and Claudia R. Williamson

This paper seeks to analyze empirically the net effect of trade openness on “economic culture”, measured by indicators of trust, respect, level of self‐determination, and…

Abstract

Purpose

This paper seeks to analyze empirically the net effect of trade openness on “economic culture”, measured by indicators of trust, respect, level of self‐determination, and obedience. Openness to international trade means that societies are more likely to be exposed to alternative attitudes, beliefs, ideas, and values leading to a Schumpeterian process of creative destruction whereby culture is destroyed on some margins and enhanced on others.

Design/methodology/approach

Using data on trade openness from Quinn and Sachs and Warner, the paper empirically evaluates the impact of trade openness on economic culture. The paper's measure of culture is taken from Tabellini and Williamson and Kerekes, where data from the World Values Survey is aggregated to create a culture variable. The paper isolates the impact of trade policies on economic culture through a variety of empirical strategies including both panel and cross sectional analysis.

Findings

The central finding of the study is that a society's openness to international trade generates, on net, positive effects on economic culture. The more open a country is to trade, the more likely it is to possess culture conducive to economic interaction and entrepreneurship.

Originality/value

This paper contributes to the existing literature by studying the impact of trade openness on culture. While previous studies have asked “Does culture affect economic outcomes?”, this paper explores the answer to the related question, “How does openness to trade affect culture?”.

Details

Journal of Entrepreneurship and Public Policy, vol. 1 no. 1
Type: Research Article
ISSN: 2045-2101

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Article
Publication date: 15 May 2017

Rudra P. Pradhan, Mak Arvin, John H. Hall, Sara E. Bennett and Sahar Bahmani

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…

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.

Details

Journal of Economic and Administrative Sciences, vol. 33 no. 1
Type: Research Article
ISSN: 1026-4116

Keywords

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