Demand-following or supply-leading? Trade openness and financial development in China

Jiao-Jiao Fan, Ruzhi Xu, Chi Wei Su and Qing-Hua Shi

The Journal of International Trade & Economic Development, 2018, vol. 27, issue 3, 314-332

Abstract: This study explores the causal relationship between financial development and trade openness in China, using the research methodology namely bootstrap Granger full-sample causality test and sub-sample rolling-window estimation. The results reveal that there is a significant bidirectional relationship between financial development and trade openness in China, pointing out the existence of both ‘demand-following’ and ‘supply-leading’ hypotheses. Furthermore, their relationship fits well the fact that China has experienced economic restructuring and structural changes in the past few decades. As financial development improves trade openness robustly, the Chinese policymakers should further increase financial reform to promote trade development.

Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:taf:jitecd:v:27:y:2018:i:3:p:314-332

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DOI: 10.1080/09638199.2017.1390779

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