Working Paper: CEPR ID: DP5150
Authors: Yongfu Huang; Jonathan Temple
Abstract: Several recent papers have argued that trade and financial development may be linked, either for political economy reasons, or because foreign competition and exposure to shocks lead to changes in the demand for external finance. In this paper we use the cross-country and time-series variation in openness to study the relationship between trade and finance in more detail. Our results suggest that increases in goods market openness are typically followed by sustained increases in financial depth.
Keywords: financial development; openness; trade
JEL Codes: F13; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| goods market openness (F61) | financial depth (O16) |
| financial development (O16) | goods market openness (F61) |
| goods market openness (F61) | bank-based finance (G21) |
| goods market openness (F61) | stock market development (G10) |
| goods market openness (F61) | financial depth (O16) |