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The Direct and Indirect Effects of Financial Development on International Trade: Evidence from the CEEC-6

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  • Guglielmo Maria Caporale
  • Anamaria Sova
  • Robert Sova

Abstract

This paper analyses the relationship between financial development and international trade in six EU members from Central and Eastern Europe (CEEC-6) using dynamic panel data approaches, specifically the system Generalized Method of Moments (GMM) and pooled mean group (PMG) estimators. The empirical results indicate that financial development affects trade flows and the structure of international trade in the long run; more precisely, it has a positive long-run impact on exports and trade openness. Further, there are indirect long-run effects through the interaction terms between financial development and sectoral value added; these are more pronounced for manufacturing than for agriculture. On the whole, our analysis suggests that the CEEC-6 could benefit in terms of trade from further developing their financial systems.
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  • Guglielmo Maria Caporale & Anamaria Sova & Robert Sova, 2020. "The Direct and Indirect Effects of Financial Development on International Trade: Evidence from the CEEC-6," CESifo Working Paper Series 8585, CESifo.
    • Handle: RePEc:ces:ceswps:_8585
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    More about this item

    Keywords

    financial development; international trade; CEEC-6; system GMM estimator; PMG estimator;
    All these keywords.

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities

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