Financial Development, Financial Openness and Trade Openness: New evidence

This paper aims at investigating the linkages among financial development, financial openness and trade openness in twenty-nine Asian developing countries over the period 1994-2008. Employing the Pedroni co-integration technique, our research provides a number of major findings. The first one supports an evidence of bidirectional causality between trade openness and financial development/openness. This means that opening up the economy to trade seems to be a precondition for financial development and financial openness, which, in turn, allow developing countries to generate gains in terms of trade openness. The second one suggests that the relationship between financial development and financial openness is heterogeneous, as well as its variation across different measures. Finally, this paper provides a complementary contribution to earlier studies as asking for the question of whether the inclusion of financial crisis in estimated models can change the nature of the relationship between financial development and both types of openness.