The direct and indirect effects of financial development on international trade: Evidence from the CEEC-6

Guglielmo Maria Caporale, Anamaria Diana Sova and Robert Sova

Journal of International Financial Markets, Institutions and Money, 2022, vol. 78, issue C

Abstract: This paper analyses the relationship between financial development and international trade in six EU members from Central and Eastern Europe (CEEC-6) using dynamic panel data approaches, specifically the system Generalized Method of Moments (GMM) and pooled mean group (PMG) estimators. The empirical results indicate that financial development affects trade flows and the structure of international trade in the long run; more precisely, it has a positive long-run impact on exports and trade openness. Further, there are indirect long-run effects through the interaction terms between financial development and sectoral value added; these are more pronounced for manufacturing than for agriculture. On the whole, our analysis suggests that the CEEC-6 could benefit in terms of trade from further developing their financial systems.

Keywords: Financial development; International trade; CEEC-6; System GMM estimator; PMG estimator (search for similar items in EconPapers)
JEL-codes: C25 E61 F13 F15 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (5)

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Working Paper: The Direct and Indirect Effects of Financial Development on International Trade: Evidence from the CEEC-6 (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:78:y:2022:i:c:s1042443122000403

DOI: 10.1016/j.intfin.2022.101550

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