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Trade Openness and Diversification of External Financial Flows for Development: An Empirical Analysis

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  • Sèna Kimm Gnangnon

Abstract

The implementation of sustainable development goals (SDGs) adopted in 2015 by the international community in the Agenda 2030 requires a substantial mobilization of financial resources. In the meantime, Goal 17 of this Agenda recognizes trade as an important means of the implementation of the SDGs. The current article investigates empirically the impact of openness to international trade on the diversification of external financial flows for development, which could help developing countries achieve the SDGs by 2030. To that end, three major external flows for development have been considered: development aid inflows, migrants’ remittances inflows and foreign direct investment (FDI) inflows. The analysis relies on a panel data set comprising 116 countries, over the period 1970–2017. The empirical analysis relies primarily on the two-step system generalized method of moments (GMM) approach and shows that greater trade openness exerts a positive and significant impact on the diversification of external financial flows for development, in particular, in the least developed countries (LDCs). As a result, greater openness to international trade could be an important tool for external capital flows diversification in developing countries. JEL Classification: F13, F14, F21, F24, F35, O20

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  • Sèna Kimm Gnangnon, 2020. "Trade Openness and Diversification of External Financial Flows for Development: An Empirical Analysis," South Asian Journal of Macroeconomics and Public Finance, , vol. 9(1), pages 22-57, June.
    • Handle: RePEc:sae:smppub:v:9:y:2020:i:1:p:22-57
    DOI: 10.1177/2277978719898974
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    More about this item

    Keywords

    Diversification of external financial flows for development; development aid; remittances; foreign direct investment; trade openness;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O20 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - General

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