Financial Openness and Trade (Real) Openness: Should We Open Up Both Markets?

Chew Keong Wai (), Tuck Cheong Tang () and Siew Voon Soon
Additional contact information
Chew Keong Wai: Tunku Abdul Rahman University of Management and Technology, Kuala Lumpur, Malaysia, Postal: Faculty of Business and Economics; Universiti Malaya; 50603 Kuala, Lumpur; Malaysia
Siew Voon Soon: Department of Decision Science, Universiti Malaya, Kuala Lumpur, Malaysia, Postal: Faculty of Business and Economics; Universiti Malaya; 50603 Kuala, Lumpur; Malaysia

Journal of Economic Integration, 2024, vol. 39, issue 2, 483-507

Abstract: This study examines the 'interdependence' between financial openness and trade (real) openness, as well as the macroeconomic determinants of such relationship from a general equilibrium perspective (viz. the balance of payments constraint). The macroeconomics factors are national income, exchange rate, and interest rate. The data cover 124 countries over a period spanning between 1970 and 2019. The 'interdependence' between financial and trade openness is captured by a positive Pearson correlation in most of the countries (i.e. between 60% and 79% of the countries). However, a more precise measure of a bidirectional causality between both openness exists in only 35% (44 countries) of 124 countries. The empirical results show that exchange rate explains negatively the estimated correlation coefficients between financial and trade openness, as well as for low income countries. While, the interest rate increases the likelihood of their bidirectional causality results. This study provides policy insights related to both the financial and real markets.

Keywords: causality; financial openness; interdependence; real sector; trade openness (search for similar items in EconPapers)
JEL-codes: E44 F41 G15 (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.e-jei.org Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0909

Access Statistics for this article

Journal of Economic Integration is currently edited by Seongeun Kim

More articles in Journal of Economic Integration from Center for Economic Integration, Sejong University Contact information at EDIRC.
Bibliographic data for series maintained by Yunhoe Kim ().