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Impacts of openness on financial development in developing countries: Using a Bayesian model averaging approach

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  • Diem Pham Thi Thuy
  • Hoai Nguyen Trong
  • Evan Lau

Abstract

This study investigates the influences of trade and financial openness on financial development over the period 2003–2017 from a sample of 64 developing countries, employing a Bayesian model averaging approach to take into account model uncertainty. The results demonstrate that the contribution of trade openness to financial development is important in developing economies with better institutions. However, financial openness has an insignificant positive effect on financial development. There is no evidence to support the Rajan and Zingales hypothesis that the simultaneous openness to both trade and capital flows promotes financial development. Our findings also indicate that a better institutions environment allows a developing economy to exploit the benefits of openness to financial development.

Suggested Citation

  • Diem Pham Thi Thuy & Hoai Nguyen Trong & Evan Lau, 2021. "Impacts of openness on financial development in developing countries: Using a Bayesian model averaging approach," Cogent Economics & Finance, Taylor & Francis Journals, vol. 9(1), pages 1937848-193, January.
    • Handle: RePEc:taf:oaefxx:v:9:y:2021:i:1:p:1937848
    DOI: 10.1080/23322039.2021.1937848
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    Cited by:

    1. Alin Vasile Străchinaru, 2023. "The impact of macroeconomic indicators of economic growth: an empirical analysis of Central and Eastern European countries," Journal of Financial Studies, Institute of Financial Studies, vol. 15(8), pages 155-176, December.
    2. Fengju, Xu & Wubishet, Assmamawu, 2024. "Analysis of the impacts of financial development on economic growth in East Africa: How do the institutional qualities matter?," Economic Analysis and Policy, Elsevier, vol. 82(C), pages 1177-1189.
    3. Çetin, Murat & Sarıgül, Sevgi Sümerli & Işık, Cem & Avcı, Pınar & Ahmad, Munir & Alvarado, Rafael, 2023. "The impact of natural resources, economic growth, savings, and current account balance on financial sector development: Theory and empirical evidence," Resources Policy, Elsevier, vol. 81(C).

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