The Short-Run and Long-Run Effects of Trade Openness on Financial Development: Some Panel Evidence for Europe

Guglielmo Maria Caporale, Anamaria Sova and Robert Sova

No 9082, CESifo Working Paper Series from CESifo

Abstract: This paper analyses the short- and long-run effects of trade openness on financial development in a panel including data on 35 European countries over the period 2001-2019. For this purpose, it uses the PMG (pooled mean group) estimator for dynamic panels developed by Pesaran et al. (1999). The results differ depending on the income, governance and financial development level of the countries considered. In particular, it appears that in the middle-income countries trade openness tends to strengthen financial development in the long run but to have an adverse effect in the short run. By contrast, in the case of high-income countries with better institutions and a higher level of financial development, there is a positive and significant impact in the short run. Some policy implications of these findings are drawn.

Keywords: trade openness; financial development; panel data; PMG estimator; Europe (search for similar items in EconPapers)
JEL-codes: C25 E61 F13 F15 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-eec, nep-fdg, nep-int and nep-mac
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Related works:
Journal Article: The short‐run and long‐run effects of trade openness on financial development: Some panel evidence for Europe (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_9082

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