EconPapers    
Economics at your fingertips  
 

Threshold effect of economic openness on bank risk-taking: Evidence from emerging markets

Tung Duy Bui and Hoai Thi Mai Bui

Economic Modelling, 2020, vol. 91, issue C, 790-803

Abstract: This paper investigates the non-linear effects of two aspects of economic openness, namely, trade openness and financial openness, on banking system stability. We use a panel of 42 emerging markets from 2000 to 2014 to test whether bank risk-taking behaviour varies with the level of openness. We find that a higher degree of trade openness promotes bank stability linearly. Conversely, the non-linear effect of financial openness on bank risk-taking is evident. When the financial system is not sufficiently open, the impact of financial openness on bank stability is insignificant. However, as the domestic financial market becomes more open, financial openness can help discipline the behaviour of banks, making them more stable. We also find evidence that these effects are transmitted through the market discipline channel. Our findings highlight the importance of strengthening the domestic regulatory framework and transparency as the economy becomes more integrated.

Keywords: Financial openness; Trade openness; Panel smooth transition regression; Bank risk-taking (search for similar items in EconPapers)
JEL-codes: F30 G21 G38 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264999319300537
Full text for ScienceDirect subscribers only

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:eee:ecmode:v:91:y:2020:i:c:p:790-803

DOI: 10.1016/j.econmod.2019.11.013

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2021-09-25
Handle: RePEc:eee:ecmode:v:91:y:2020:i:c:p:790-803