DP5150 Does External Trade Promote Financial Development?

Author(s): Yongfu Huang, Jonathan Temple
Publication Date: July 2005
Keyword(s): financial development, openness, trade
JEL(s): F13, O16
Programme Areas: Institutions and Economic Performance
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5150

Several recent papers have argued that trade and financial development may be linked, either for political economy reasons, or because foreign competition and exposure to shocks lead to changes in the demand for external finance. In this paper we use the cross-country and time-series variation in openness to study the relationship between trade and finance in more detail. Our results suggest that increases in goods market openness are typically followed by sustained increases in financial depth.