IDEAS home Printed from https://ideas.repec.org/a/eee/ecolet/v158y2017icp21-25.html
   My bibliography  Save this article

The finance–trade nexus revisited: Is the global trade slowdown also a financial story?

Author

Listed:
  • Gächter, Martin
  • Gkrintzalis, Ioannis

Abstract

This paper studies the role of non-linearities in the finance–trade nexus. While we confirm the positive impact of financial development on the level of trade openness, our findings reveal that the marginal effect decreases considerably with the size of the financial sector. The study contributes to two different strands of the economic literature: First, while widely examined in the finance–growth nexus literature, the discovered non-linearities have been neglected so far in studies on the link between finance and trade. Second, the diminishing marginal effect of finance appears to be an important factor in explaining the recent slowdown in global trade growth.

Suggested Citation

  • Gächter, Martin & Gkrintzalis, Ioannis, 2017. "The finance–trade nexus revisited: Is the global trade slowdown also a financial story?," Economics Letters, Elsevier, vol. 158(C), pages 21-25.
    • Handle: RePEc:eee:ecolet:v:158:y:2017:i:c:p:21-25
    DOI: 10.1016/j.econlet.2017.05.037
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0165176517302239
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econlet.2017.05.037?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Kalina Manova, 2013. "Credit Constraints, Heterogeneous Firms, and International Trade," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 80(2), pages 711-744.
    2. Peter L. Rousseau & Paul Wachtel, 2011. "What Is Happening To The Impact Of Financial Deepening On Economic Growth?," Economic Inquiry, Western Economic Association International, vol. 49(1), pages 276-288, January.
    3. Thorsten Beck, 2003. "Financial Dependence and International Trade," Review of International Economics, Wiley Blackwell, vol. 11(2), pages 296-316, May.
    4. Hur, Jung & Raj, Manoj & Riyanto, Yohanes E., 2006. "Finance and trade: A cross-country empirical analysis on the impact of financial development and asset tangibility on international trade," World Development, Elsevier, vol. 34(10), pages 1728-1741, October.
    5. Cabrillac, Bruno & Al-Haschimi, Alexander & Babecká Kucharčuková, Oxana & Borin, Alessandro & Bussière, Matthieu & Cezar, Raphael & Derviz, Alexis & Dimitropoulou, Dimitra & Ferrara, Laurent & Gächter, 2016. "Understanding the weakness in global trade - What is the new normal?," Occasional Paper Series 178, European Central Bank.
    6. Kletzer, Kenneth & Bardhan, Pranab, 1987. "Credit markets and patterns of international trade," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 57-70, October.
    7. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    8. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-586, June.
    9. Jean Arcand & Enrico Berkes & Ugo Panizza, 2015. "Too much finance?," Journal of Economic Growth, Springer, vol. 20(2), pages 105-148, June.
    10. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    11. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934, Elsevier.
    12. Breitenlechner, Max & Gächter, Martin & Sindermann, Friedrich, 2015. "The finance–growth nexus in crisis," Economics Letters, Elsevier, vol. 132(C), pages 31-33.
    13. Enrico Berkes & Ugo Panizza & Jean Louis Arcand, 2015. "Too Much Finance or Statistical Illusion: A Comment," IHEID Working Papers 12-2015, Economics Section, The Graduate Institute of International Studies.
    14. Stephen Cecchetti & Enisse Kharroubi, 2012. "Reassessing the impact of finance on growth," BIS Working Papers 381, Bank for International Settlements.
    15. Bo Becker & Jinzhu Chen & David Greenberg, 2013. "Financial Development, Fixed Costs, and International Trade," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 2(1), pages 1-28.
    16. Svaleryd, Helena & Vlachos, Jonas, 2005. "Financial markets, the pattern of industrial specialization and comparative advantage: Evidence from OECD countries," European Economic Review, Elsevier, vol. 49(1), pages 113-144, January.
    17. Thorsten Beck & Asli Demirgüç-Kunt & Ross Levine, 2000. "A New Database on the Structure and Development of the Financial Sector," The World Bank Economic Review, World Bank, vol. 14(3), pages 597-605, September.
    18. Beck, Thorsten, 2002. "Financial development and international trade: Is there a link?," Journal of International Economics, Elsevier, vol. 57(1), pages 107-131, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Abdoul Rachid Issoufou Dogo, 2024. "Impact de l'intégration financière régionale sur le commerce intra régional des produits manufacturés dans la zone CEDEAO," African Development Review, African Development Bank, vol. 36(2), pages 292-305, June.
    2. Sohail, Muhammad Tayyab & Din, Norashidah Md, 2024. "How do digital inclusion and energy security risks affect mineral resources trade? Evidence from world-leading mineral trading countries," Resources Policy, Elsevier, vol. 89(C).
    3. Yakubu Awudu Sare, 2021. "Threshold Effects of Financial Sector Development on International Trade in Africa," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 515-541, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cabrillac, Bruno & Al-Haschimi, Alexander & Babecká Kucharčuková, Oxana & Borin, Alessandro & Bussière, Matthieu & Cezar, Raphael & Derviz, Alexis & Dimitropoulou, Dimitra & Ferrara, Laurent & Gächter, 2016. "Understanding the weakness in global trade - What is the new normal?," Occasional Paper Series 178, European Central Bank.
    2. Gnangnon, Sèna Kimm, 2019. "Financial Development and Tax Revenue in Developing Countries: Investigating the International Trade and Economic Growth Channels," EconStor Preprints 206628, ZBW - Leibniz Information Centre for Economics.
    3. Caporale, Guglielmo Maria & Sova, Anamaria Diana & Sova, Robert, 2022. "The direct and indirect effects of financial development on international trade: Evidence from the CEEC-6," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 78(C).
    4. Bernardina Algieri & Antonio Aquino & Lidia Mannarino, 2018. "Non-Price Competitiveness and Financial Drivers of Exports: Evidences from Italian Regions," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 4(1), pages 107-133, March.
    5. Iacovone, Leonardo & Ferro, Esteban & Pereira-López, Mariana & Zavacka, Veronika, 2019. "Banking crises and exports: Lessons from the past," Journal of Development Economics, Elsevier, vol. 138(C), pages 192-204.
    6. Yongfu Huang & Jonathan Temple, 2005. "Does external trade promote financial development?," Bristol Economics Discussion Papers 05/575, School of Economics, University of Bristol, UK.
    7. Bosello, Francesco & Eboli, Fabio & Parrado, Ramiro & Nunes, Paulo A.L.D. & Ding, Helen & Rosa, Renato, 2011. "The economic assessment of changes in ecosystem services: an application of the CGE methodology," Conference papers 332065, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    8. Amissah, Emmanuel & Bougheas, Spiros & Defever, Fabrice & Falvey, Rod, 2021. "Financial system architecture and the patterns of international trade," European Economic Review, Elsevier, vol. 136(C).
    9. Guglielmo Maria Caporale & Anamaria Diana Sova & Robert Sova, 2023. "The short‐run and long‐run effects of trade openness on financial development: Some panel evidence for Europe," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 3891-3901, October.
    10. Rafael Cezar, 2012. "Le développement financier et les avantages commerciaux," Working Papers DT/2012/19, DIAL (Développement, Institutions et Mondialisation).
    11. Rafael Cezar, 2015. "The gravity of financial development," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 24(5), pages 696-723, August.
    12. Jackie M.L. Chan, 2015. "Trade Intermediation, Financial Frictions, and the Gains from Trade," Discussion Papers 15-009, Stanford Institute for Economic Policy Research.
    13. repec:dau:papers:123456789/7596 is not listed on IDEAS
    14. Kwan Yong Lee, 2023. "Financial dependence and exports: Entrants or incumbents?," Southern Economic Journal, John Wiley & Sons, vol. 89(4), pages 1102-1137, April.
    15. Do, Quy-Toan & Levchenko, Andrei A., 2007. "Comparative advantage, demand for external finance, and financial development," Journal of Financial Economics, Elsevier, vol. 86(3), pages 796-834, December.
    16. Claessens, Stijn & van Horen, Neeltje, 2021. "Foreign banks and trade," Journal of Financial Intermediation, Elsevier, vol. 45(C).
    17. Kalina Manova, 2013. "Credit Constraints, Heterogeneous Firms, and International Trade," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 80(2), pages 711-744.
    18. Christian Keuschnigg & Michael Kogler, 2022. "Trade and credit reallocation: How banks help shape comparative advantage," Review of International Economics, Wiley Blackwell, vol. 30(1), pages 282-305, February.
    19. N. R. Ramírez-Rondán & Marco E. Terrones & Andrea Vilchez, 2020. "Does financial sector development affect the growth gains from trade openness?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 156(3), pages 475-515, August.
    20. Demir, FIrat & Dahi, Omar S., 2011. "Asymmetric effects of financial development on South-South and South-North trade: Panel data evidence from emerging markets," Journal of Development Economics, Elsevier, vol. 94(1), pages 139-149, January.
    21. Duc Bao Nguyen & Anne‐Gaël Vaubourg, 2021. "Financial intermediation, trade agreements and international trade," The World Economy, Wiley Blackwell, vol. 44(3), pages 788-817, March.

    More about this item

    Keywords

    Finance; Financial development; Trade; Finance–trade nexus; Non-linearities;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecolet:v:158:y:2017:i:c:p:21-25. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ecolet .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.