TY - JOUR
T1 - Financial development and openness
T2 - Evidence from panel data
AU - Baltagi, Badi H.
AU - Demetriades, Panicos O.
AU - Law, Siong Hook
N1 - Funding Information:
We acknowledge financial support from the ESRC under the World Economy and Finance Research Programme (Award RES-156-25-0009). We are grateful to the editors and two anonymous referees of this journal for many helpful comments. We would also like to thank our discussant, Sebnem Kalemli-Ozkan, and other participants at the conference “New Perspectives on Financial Globalization” (IMF, 26–27 April 2007) for insightful comments. We would also like to thank participants at the 21st Annual Congress of the European Economic Association (Vienna, 24–28 August, 2006), the Money, Macro and Finance Research Group Annual Conference (York, 13–15 September 2006) and the Corporate Governance Workshop (Cambridge, 24–25 March 2007), where earlier versions of the paper were presented. We also thank seminar participants at the Universities of Canterbury, Leicester, Manchester and Otago for useful comments. Special thanks are due to Svetlana Andrianova, Danny Cassimon, Stijn Claessens, Simon Deakin, David Fielding, Alessandra Guariglia, Kyriakos Neanidis and Bob Reed. Naturally, all remaining errors are our own.
PY - 2009/7
Y1 - 2009/7
N2 - This paper addresses the empirical question of whether trade and financial openness can help explain the recent pace in financial development, as well as its variation across countries in recent years. Utilising annual data from developing and industrialised countries and dynamic panel estimation techniques, we provide evidence which suggests that both types of openness are statistically significant determinants of banking sector development. Our findings reveal that the marginal effects of trade (financial) openness are negatively related to the degree of financial (trade) openness, indicating that relatively closed economies stand to benefit most from opening up their trade and/or capital accounts. Although these economies may be able to accomplish more by taking steps to open both their trade and capital accounts, opening up one without the other could still generate gains in terms of banking sector development. Thus, our findings provide only partial support to the well known Rajan and Zingales hypothesis, which stipulates that both types of openness are necessary for financial development to take place.
AB - This paper addresses the empirical question of whether trade and financial openness can help explain the recent pace in financial development, as well as its variation across countries in recent years. Utilising annual data from developing and industrialised countries and dynamic panel estimation techniques, we provide evidence which suggests that both types of openness are statistically significant determinants of banking sector development. Our findings reveal that the marginal effects of trade (financial) openness are negatively related to the degree of financial (trade) openness, indicating that relatively closed economies stand to benefit most from opening up their trade and/or capital accounts. Although these economies may be able to accomplish more by taking steps to open both their trade and capital accounts, opening up one without the other could still generate gains in terms of banking sector development. Thus, our findings provide only partial support to the well known Rajan and Zingales hypothesis, which stipulates that both types of openness are necessary for financial development to take place.
KW - Dynamic panel data analysis
KW - Financial development
KW - Financial liberalization
KW - Financial openness
KW - Trade openness
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U2 - 10.1016/j.jdeveco.2008.06.006
DO - 10.1016/j.jdeveco.2008.06.006
M3 - Article
AN - SCOPUS:67349258282
SN - 0304-3878
VL - 89
SP - 285
EP - 296
JO - Journal of Development Economics
JF - Journal of Development Economics
IS - 2
ER -