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Nonlinear Dynamics of Financial Development on Trade Balance

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  • Muhammet Belen

Abstract

The goal of this study is to investigate the non-linear dynamics of financial development on trade balance in Turkey. For the period of 1987Q1-2015Q2, by employing nonlinear autoregressive distributed lag (NARDL) approach to cointegration, it is found that there is cointegration between these variables. This finding suggests that both increase and decrease in financial development have different impacts on trade balance. The relationship between financial development and trade balance has also negative sign. This finding asserts that an improvement in financial development will cause a significant deterioration in trade balance while opposite is also true but with less impact. The results of the study support the empirical literature which has identified the relationship between financial development and growth as being highly correlated. But it does not support using financial development as a policy tool to reduce trade balance.

Suggested Citation

  • Muhammet Belen, 2016. "Nonlinear Dynamics of Financial Development on Trade Balance," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(5), pages 286-292, May.
    • Handle: RePEc:ibn:ijefaa:v:8:y:2016:i:5:p:286-292
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    References listed on IDEAS

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    1. 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.
    2. Muhammad Ahad, 2017. "Impact of Financial Development on Trade Balance: An ARDL Cointegration and Causality Approach for Pakistan," Global Business Review, International Management Institute, vol. 18(5), pages 1199-1214, October.
    3. Robin C. Sickles & William C. Horrace (ed.), 2014. "Festschrift in Honor of Peter Schmidt," Springer Books, Springer, edition 127, number 978-1-4899-8008-3, September.
    4. Bahmani-Oskooee, Mohsen, 1991. "Is there a long-run relation between the trade balance and the real effective exchange rate of LDCs?," Economics Letters, Elsevier, vol. 36(4), pages 403-407, August.
    5. Muzammil, Muhammad, 2015. "Impact of Financial Development on Trade Balance: An ARDL Cointegration and Causality Approach for Pakistan," MPRA Paper 68587, University Library of Munich, Germany.
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    More about this item

    Keywords

    financial development; trade balance; real exchange rate; asymmetric cointegration; nonlinear ARDL;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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