No Access

Effect of Export Upgrading on Financial Development

Sèna Kimm Gnangnon

Development Division World Trade Organization, Ruede Lausanne 154, Geneva 21, CH-1211, Switzerland

https://doi.org/10.1142/S1793993319500121Cited by:6 (Source: Crossref)

Abstract

Using a panel dataset comprising 137 countries (both developed and developing countries) over the period 1970–2010, this paper has examined the effect of export upgrading (i.e., export product diversification and export product quality improvement) on financial development. The findings suggest that export product diversification and export product quality improvement influence positively and significantly financial development in high income countries (HICs) and developing countries alike. However, for least developed countries (LDCs), export product diversification promotes financial development, but export product quality improvement exerts a negative effect on financial development.

Keywords:

JEL Classifications: F14, F36, G29, O14

References

Acemoglu, D [2008] Oligarchic versus democratic societies. Journal of the European Economic Association, 6(1), 1–44. Crossref, Google Scholar
Acemoglu, D, and S Johnson [2005] Unbundling Institutions. Journal of Political Economy, 113(5), 949–995. Crossref, Google Scholar
Acemoglu, D and JA Robinson [2006] Economic backwardness in political perspective. American Political Science Review, 100(1), 115–131. Crossref, Google Scholar
Alexander, C and K Warwick [2007] Governments, exports and growth: Responding to the challenges and opportunities of globalization. The World Economy, 30(1), 177–194. Crossref, Google Scholar
Allen, F, E Carletti, R Cull, J Qian, L Senbet and P. Valenzuela (2012). Resolving the African financial development Gap: Cross-country comparisons and a within-country study of Kenya,” NBER Working Paper No. 18013. Google Scholar
Arellano, M and O Bover [1995] Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, 68(1), 29–51. Crossref, Google Scholar
Arezki, R and F Van der Ploeg (2007). Can the natural resource curse be turned into a blessing? The role of trade policies and institutions, IMF Working Paper No. WP/07/55. Washington D.C. Google Scholar
Baltagi, BH, PO Demetriades and SH Law [2009] Financial development and openness: evidence from panel data. Journal of Development Economics, 84(2), 285–296. Crossref, Google Scholar
Batuo, ME and M Kupukile [2010] How can economic and political liberalization improve financial development in African countries? Journal of Financial Economic Policy, 2(1), 35–59. Crossref, Google Scholar
Becerra, O, E Cavallo and C Scartascini [2012] The politics of financial development: The role of interest groups and government capabilities. Journal of Banking & Finance, 36, 626–643. Crossref, Google Scholar
Ben, NS and S Ghazouani [2008] Does stock market liberalization spur financial and economic development in the MENA region? Journal of Comparative Economics, 36(4), 673–693. Crossref, Google Scholar
Blundell, R and S Bond [1998] Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87, 115–143. Crossref, Google Scholar
Bowsher, CG [2002] On testing overidentifying restrictions in dynamic panel data models. Economics Letters, 77(2), 211–220. Crossref, Google Scholar
Boyd, JH, R Levine and BD Smith [2001] The impact of inflation on financial sector performance. Journal of Monetary Economics, 47, 221–248. Crossref, Google Scholar
Cadot, O, C Carrere and V Strauss-Kahn [2011] Export diversification: What’s behind the hump? Review of Economics and Statistic, 93(2), 590–605. Crossref, Google Scholar
Capasso, S [2004] Financial markets, development and economic growth: Tales of informal asymmetries. Journal of Economic Surveys, 18(3), 267–292. Crossref, Google Scholar
Chinn, MD and H Ito [2006] What matters for financial development? Capital controls, institutions, and interactions. Journal of Development Economics, 81(1), 163–192. Crossref, Google Scholar
Chinn, MD and H Ito (2002). Capital account liberalization, institutions and financial development: Cross country evidence, NBER Working Paper 8967. Google Scholar
Čihák, M, A Demirgüç-Kunt, E Feyen and R Levine (2012). Benchmarking financial development around the world, Policy Research Working Paper 6175, World Bank, Washington, D.C. Google Scholar
Clague, C, P Keefer, S Knack and M Olson [1996] Property and contract rights in autocracies and democracies. Journal of Economic Growth, 1(2), 243–276. Crossref, Google Scholar
David, AC, M Mlachila and A Moheeput (2014). Does openness matter for financial development in Africa? IMF Working Paper WP/14/94, International Monetary Fund, Washington, D.C. Google Scholar
Do, QT and A Levchenko [2007] Comparative advantage, demand for external finance, and financial development? Journal of Financial Economics, 86(3), 796–834. Crossref, Google Scholar
Driscoll, JC and AC Kraay [1998] Consistent covariance matrix estimation with spatially dependent panel data. Review of Economics and Statistics, 80(4), 549–560. Crossref, Google Scholar
Ghardallou, W [2016] Does democratic transition spur financial development? Journal of Financial Economic Policy, 8(4), 499–513. Crossref, Google Scholar
Girma, S and A Shortland (2008). The political economy of financial development. Oxford Economic Papers, 60(4), 567-596. Google Scholar
Gnangnon, SK and S Priyadarshi [2017] The multilateral decision on duty free quota free market access and least developed countries’ export performance. Economic Analysis and Policy, 56, 86–100. Crossref, Google Scholar
Goldsmith, RW [1969] Financial Structure and Development. New Haven: Yale University Press. Google Scholar
Greenaway, D, W Morgan and P Wright [1999] Exports, export composition and growth. The Journal of International Trade & Economic Development, 8(1), 41–51. Crossref, Google Scholar
Greeneway, D, A Guariglia and R Kneller [2007] Financial factors and exporting decisions. Journal of International Economics, 73(2), 377–395. Crossref, Google Scholar
Haber, S, D North and B Weingast [2008] Political Institutions and Financial Development. Stanford University Press. Google Scholar
Haddad, M, JJ Lim, C Pancaro and C Saborowski [2013] Trade openness reduces growth volatility when countries are well diversified. Canadian Journal of Economics, 46(2), 765–790. Crossref, Google Scholar
Hattendorff, C (2014). Natural resources, export concentration and financial development, Diskussionsbeiträge, No. 2014/34, Freie Universität Berlin, Fachbereich Wirtschaftswissenschaft, Berlin. Google Scholar
Hauner, D, A Prati and C Bircan [2013] The interest group theory of financial development: Evidence from regulation. Journal of Banking & Finance 37, 895–906. Crossref, Google Scholar
Hausmann, R, J Hwang and D Rodrik [2007] What you export matters, Journal of Economic Growth, 12(1), 1–25. Crossref, Google Scholar
Hausmann, R and R Rigobon (2003). An alternative interpretation of the ‘Resource Curse’: Theory and policy implications, Cambridge: National Bureau of Economic Research, Working Paper No. 9424. Google Scholar
Henn, C, C Papageorgiou and N Spatafora (2015). Export Quality in Advanced and Developing Economies: Evidence from a New Dataset. WTO Working Paper ERSD-2015-02, World Trade Organization, Geneva. Google Scholar
Herger, N, R Hodler and M Lobsiger [2008] What determines financial development? Culture, institutions or trade. Review of World Economics, 144(3), 558–587. Crossref, Google Scholar
Herzer, D and DF Nowak-Lehnmann [2006] ‘ What does export diversification do for growth? An econometric analysis’, Applied Economics, 38(15), 1825–1838. Crossref, Google Scholar
Huang, Y [2010] Political institutions and financial development: An empirical study. World Development, 38(2), 1667–1677. Crossref, Google Scholar
Huang, Y and J Temple (2005). Does external trade promote financial development? University of Bristol Department of Economics Discussion Paper, 05/575. Google Scholar
IMF (2014). Sustaining long-run growth and macroeconomic stability in low-income countries- the role of structural transformation and diversification. International Monetary Fund, March/2014. Policy Paper prepared IMF staff and completed on March 5, 2014 for the Executive Board’s consideration on March 20, 2014. Google Scholar
Kennedy, WP [1987] Industrial Structure, Capital Markets, and Origins of British Economic Decline. Cambridge, United Kingdom: Cambridge University Press. Google Scholar
Klein, M and G Olivei [2008] Capital account liberalization, financial depth, and economic growth. Journal of International Money and Finance, 27(6), 861–875. Crossref, Google Scholar
Kletzer, K and P Bardhan [1987] Credit markets and patterns of international trade. Journal of Development Economics, 27, 57–70. Crossref, Google Scholar
Kolstad, I and A Wiig [2017] Diversification and democracy. International Political Science Review. https://doi.org/10.1177/0192512116679833 Google Scholar
La Porta, R, F Lopez-de-Silanes, A Shleifer and R Vishny [1997] Legal determinants of external finance. Journal of Finance, 52, 113–150. Crossref, Google Scholar
Levine, R [1997] Financial development and economic growth: Views and agenda. Journal of Economic Literature, 35(2), 688–726. Google Scholar
Levine, R [2001] International financial liberalization and economic growth. Review of International Economics, 9(4), 688–701. Crossref, Google Scholar
Marshall, MG and K Jaggers (2009). Polity IV Project Country Reports, CIDUM, University of Maryland, College Park, MD. Google Scholar
Naudé, W, M Bosker and M Matthee [2010] Export specialization and local economic growth. World Economy, 33(4), 552–572. Crossref, Google Scholar
Nickell, S [1981] Biases in dynamic models with fixed effects. Econometrica, 49(6), 1417–1426. Crossref, Google Scholar
North, DC and RP Thomas [1973] The Rise of the Western World: A New Economic History. Cambridge: Cambridge University Press. Crossref, Google Scholar
North, DC and BR Weingast [1989] Constitutions and commitment: The evolution of institutions governing public choice in seventeenth-century England. Journal of Economic History, 44(4), 803–832. Crossref, Google Scholar
Rajan, R and L Zingales [2003] The great reversals: The politics of financial development in the twentieth century. Journal of Financial Economics, 69(1), 5–50. Crossref, Google Scholar
Ramcharan, R (2006). Does economic diversification lead to financial development? Evidence From topography, IMF Working Paper, No. 06/35, International Monetary Fund, Washington D.C. Google Scholar
Roodman, DM [2009] A note on the theme of too many instruments. Oxford Bulletin of Economic and Statistics, 71(1), 135–158. Crossref, Google Scholar
Svaleryd, V and J Vlachos [2002] Markets for risk and openness to trade: How are they related? Journal of International Economics, 57(2), 369–395. Crossref, Google Scholar
Thorsten, B, A Demirgüç-Kunt and R Levine (2009). Financial Institutions and Markets Across Countries and over Time: Data and Analysis. World Bank Policy Research Working Paper 4943, Washington D.C. Google Scholar
Thorsten, B, A Demirgüç-Kunt and R Levine [2000] A new database on financial development and structure. World Bank Economic Review, 14, 597–605. Crossref, Google Scholar
Tressel, T and E Detragiache (2008). Do financial sector reforms lead to financial development? Evidence from a new dataset, IMF Working Paper 08/265, December, International Monetary Fund, Washington. Google Scholar
Vaubourg, AG [2016] Finance and international trade: A review of the literature. Revue d’économie Politique, 126(1), 57–87. Crossref, Google Scholar
Voghouei, H, M Azali and SH Law (2011). Does the political institution matter for financial development? Economic Papers, 30, 77–98. Google Scholar
Wiig, A and I Kolstad [2012] If diversification is good, why don’t countries diversify more? The political economy of diversification in resource-rich countries. Energy Policy, 40, 196–203. Crossref, Google Scholar
World Trade Organization (WTO) (2005). Ministerial Declaration Adopted on 18 December 2005 at the Sixth Session of the Ministerial Conference in Hong Kong, Reference Number: WT/MIN(05)/DEC. Google Scholar
World Trade Organization (WTO) (2015). Market access for products and services of export interest to Least Developed Countries: A WTO@20 Retrospective. WTO Secretariat Note for Sub-Committee on Least Developed Countries, Reference Number WT/COMTD/LDC/W/60, 5 October 2015, p. 68. Google Scholar
Wrigley, EA [1988] Continuity, Chance and Change: The Character of the Industrial Revolution in England. Cambridge: Cambridge University Press. Crossref, Google Scholar
Yang, B [2011] Does democracy foster financial development? An empirical analysis. Economics Letters, 112(3), 262–265. Crossref, Google Scholar
Yeyati, EL, U Panizza and E Stein [2007] The cyclical nature of North-South FDI flows. Journal of International Money and Finance, 26, 104–130. Crossref, Google Scholar
Zhang, C, Y Zhu and Z Lu [2015] Trade openness, financial openness, and financial development in China. Journal of International Money and Finance, 59, 287–309. Crossref, Google Scholar
Ziliak, JP [1997] Efficient estimation with panel data when instruments are predetermined: An empirical comparison of moment-condition estimators. Journal of Business and Economic Statistics, 15(4), 419–431. Crossref, Google Scholar