Trade and Financial Development
The differences in financial development between advanced and developing countries are pronounced. It has been observed, both theoretically and empirically, that these differences in countries' financial systems are a source of comparative adv...
| Main Authors: | , |
|---|---|
| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, D.C.
2013
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2004/06/4964018/trade-financial-development http://hdl.handle.net/10986/14062 |
| id |
okr-10986-14062 |
|---|---|
| recordtype |
oai_dc |
| spelling |
okr-10986-140622021-04-23T14:03:21Z Trade and Financial Development Do, Quy-Toan Levchenko, Andrei A. TRADE INTERNATIONAL TRADE FINANCIAL DEVELOPMENT ENDOGENOUS DEVELOPMENT NEW INTERNATIONAL ECONOMIC ORDER FINANCIAL SYSTEMS FINANCIAL INFRASTRUCTURE ORGANIZATION FOR ECONOMIC COOPERATION & DEVELOPMENT ENTREPRENEURS BUSINESS ENTERPRISES AGGREGATE OUTPUT AGGREGATE SUPPLY AGGREGATE TRADE ARBITRAGE CLOSED ECONOMY COMPARATIVE ADVANTAGE COUNTRY CHARACTERISTICS COUNTRY DUMMIES CREDIT MARKET DATA SET DEBT DEVELOPED COUNTRIES DEVELOPING COUNTRIES DIFFERENTIAL IMPACT ECONOMIC CONDITIONS EMERGING MARKETS EMPIRICAL EVIDENCE EMPIRICAL SUPPORT EMPIRICAL WORK EQUILIBRIUM EQUILIBRIUM VALUE EXPORTS EXTERNAL FINANCE EXTERNAL FINANCING EXTERNALITIES EXTERNALITY FINAL GOODS FINANCIAL DEPTH FINANCIAL DEVELOPMENT FINANCIAL MARKETS FINANCIAL SECTOR FINANCIAL SYSTEM FINANCIAL SYSTEMS GDP GRAVITY MODEL HUMAN CAPITAL IMPACT OF TRADE IMPORTS INCOME INCOME DISTRIBUTION INCOME VARIABILITY INCREASING GROWTH INCREASING RETURNS INCREASING RETURNS TO SCALE INSURANCE INTEREST RATE INTEREST RATES INTERMEDIATE GOODS INTERNATIONAL TRADE INVESTOR PROTECTION LEGAL SYSTEM LIQUID LIABILITIES LIQUIDITY LONG-RUN GROWTH M2 MARKET CAPITALIZATION MARKET SIZE MEASURE OF TRADE NEGATIVE EFFECT NON-OECD COUNTRIES OPPORTUNITY COST OUTPUT VOLATILITY PER CAPITA INCOME PER CAPITA INCOMES POOR COUNTRIES POOR COUNTRY POSITIVE EFFECT POSITIVE EXTERNALITY PRODUCTION FUNCTION PRODUCTIVITY PROFIT MAXIMIZATION PROPERTY RIGHTS REAL OUTPUT RESEARCH AGENDA SIGNIFICANCE LEVEL SIGNIFICANT DIFFERENCES SPECIALIZATION TOTAL OUTPUT TRADE OPENING TRADE OPENNESS TRADE PATTERNS UNIT OF LABOR WEALTH The differences in financial development between advanced and developing countries are pronounced. It has been observed, both theoretically and empirically, that these differences in countries' financial systems are a source of comparative advantage and trade. This paper points out that to the extent a country's financial development is endogenous, it will in turn be influenced by trade. The paper builds a model in which a country's financial development is an equilibrium outcome of the economy's productive structure: in countries with large financially intensive sectors financial systems are more developed. When a wealthy and a poor country open to trade, the financially dependent sectors grow in the wealthy country, and so does the financial system. By contrast, as the financially intensive sectors shrink in the poor country, demand for external finance decreases and the domestic financial system deteriorates. This paper describes the authors' test model using data on financial development for a sample of 77 countries. The authors find that the main predictions of the model are borne out in the data: trade openness is associated with faster financial development in wealthier countries, and with slower financial development in poorer ones. 2013-06-20T16:51:55Z 2013-06-20T16:51:55Z 2004-04 http://documents.worldbank.org/curated/en/2004/06/4964018/trade-financial-development http://hdl.handle.net/10986/14062 English en_US Policy, Research working paper;no. WPS 3347 Policy Research Working Paper;No.3347 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, D.C. Publications & Research :: Policy Research Working Paper Publications & Research |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
TRADE INTERNATIONAL TRADE FINANCIAL DEVELOPMENT ENDOGENOUS DEVELOPMENT NEW INTERNATIONAL ECONOMIC ORDER FINANCIAL SYSTEMS FINANCIAL INFRASTRUCTURE ORGANIZATION FOR ECONOMIC COOPERATION & DEVELOPMENT ENTREPRENEURS BUSINESS ENTERPRISES AGGREGATE OUTPUT AGGREGATE SUPPLY AGGREGATE TRADE ARBITRAGE CLOSED ECONOMY COMPARATIVE ADVANTAGE COUNTRY CHARACTERISTICS COUNTRY DUMMIES CREDIT MARKET DATA SET DEBT DEVELOPED COUNTRIES DEVELOPING COUNTRIES DIFFERENTIAL IMPACT ECONOMIC CONDITIONS EMERGING MARKETS EMPIRICAL EVIDENCE EMPIRICAL SUPPORT EMPIRICAL WORK EQUILIBRIUM EQUILIBRIUM VALUE EXPORTS EXTERNAL FINANCE EXTERNAL FINANCING EXTERNALITIES EXTERNALITY FINAL GOODS FINANCIAL DEPTH FINANCIAL DEVELOPMENT FINANCIAL MARKETS FINANCIAL SECTOR FINANCIAL SYSTEM FINANCIAL SYSTEMS GDP GRAVITY MODEL HUMAN CAPITAL IMPACT OF TRADE IMPORTS INCOME INCOME DISTRIBUTION INCOME VARIABILITY INCREASING GROWTH INCREASING RETURNS INCREASING RETURNS TO SCALE INSURANCE INTEREST RATE INTEREST RATES INTERMEDIATE GOODS INTERNATIONAL TRADE INVESTOR PROTECTION LEGAL SYSTEM LIQUID LIABILITIES LIQUIDITY LONG-RUN GROWTH M2 MARKET CAPITALIZATION MARKET SIZE MEASURE OF TRADE NEGATIVE EFFECT NON-OECD COUNTRIES OPPORTUNITY COST OUTPUT VOLATILITY PER CAPITA INCOME PER CAPITA INCOMES POOR COUNTRIES POOR COUNTRY POSITIVE EFFECT POSITIVE EXTERNALITY PRODUCTION FUNCTION PRODUCTIVITY PROFIT MAXIMIZATION PROPERTY RIGHTS REAL OUTPUT RESEARCH AGENDA SIGNIFICANCE LEVEL SIGNIFICANT DIFFERENCES SPECIALIZATION TOTAL OUTPUT TRADE OPENING TRADE OPENNESS TRADE PATTERNS UNIT OF LABOR WEALTH |
| spellingShingle |
TRADE INTERNATIONAL TRADE FINANCIAL DEVELOPMENT ENDOGENOUS DEVELOPMENT NEW INTERNATIONAL ECONOMIC ORDER FINANCIAL SYSTEMS FINANCIAL INFRASTRUCTURE ORGANIZATION FOR ECONOMIC COOPERATION & DEVELOPMENT ENTREPRENEURS BUSINESS ENTERPRISES AGGREGATE OUTPUT AGGREGATE SUPPLY AGGREGATE TRADE ARBITRAGE CLOSED ECONOMY COMPARATIVE ADVANTAGE COUNTRY CHARACTERISTICS COUNTRY DUMMIES CREDIT MARKET DATA SET DEBT DEVELOPED COUNTRIES DEVELOPING COUNTRIES DIFFERENTIAL IMPACT ECONOMIC CONDITIONS EMERGING MARKETS EMPIRICAL EVIDENCE EMPIRICAL SUPPORT EMPIRICAL WORK EQUILIBRIUM EQUILIBRIUM VALUE EXPORTS EXTERNAL FINANCE EXTERNAL FINANCING EXTERNALITIES EXTERNALITY FINAL GOODS FINANCIAL DEPTH FINANCIAL DEVELOPMENT FINANCIAL MARKETS FINANCIAL SECTOR FINANCIAL SYSTEM FINANCIAL SYSTEMS GDP GRAVITY MODEL HUMAN CAPITAL IMPACT OF TRADE IMPORTS INCOME INCOME DISTRIBUTION INCOME VARIABILITY INCREASING GROWTH INCREASING RETURNS INCREASING RETURNS TO SCALE INSURANCE INTEREST RATE INTEREST RATES INTERMEDIATE GOODS INTERNATIONAL TRADE INVESTOR PROTECTION LEGAL SYSTEM LIQUID LIABILITIES LIQUIDITY LONG-RUN GROWTH M2 MARKET CAPITALIZATION MARKET SIZE MEASURE OF TRADE NEGATIVE EFFECT NON-OECD COUNTRIES OPPORTUNITY COST OUTPUT VOLATILITY PER CAPITA INCOME PER CAPITA INCOMES POOR COUNTRIES POOR COUNTRY POSITIVE EFFECT POSITIVE EXTERNALITY PRODUCTION FUNCTION PRODUCTIVITY PROFIT MAXIMIZATION PROPERTY RIGHTS REAL OUTPUT RESEARCH AGENDA SIGNIFICANCE LEVEL SIGNIFICANT DIFFERENCES SPECIALIZATION TOTAL OUTPUT TRADE OPENING TRADE OPENNESS TRADE PATTERNS UNIT OF LABOR WEALTH Do, Quy-Toan Levchenko, Andrei A. Trade and Financial Development |
| relation |
Policy, Research working paper;no. WPS 3347 |
| description |
The differences in financial development
between advanced and developing countries are pronounced. It
has been observed, both theoretically and empirically, that
these differences in countries' financial systems are a
source of comparative advantage and trade. This paper points
out that to the extent a country's financial
development is endogenous, it will in turn be influenced by
trade. The paper builds a model in which a country's
financial development is an equilibrium outcome of the
economy's productive structure: in countries with large
financially intensive sectors financial systems are more
developed. When a wealthy and a poor country open to trade,
the financially dependent sectors grow in the wealthy
country, and so does the financial system. By contrast, as
the financially intensive sectors shrink in the poor
country, demand for external finance decreases and the
domestic financial system deteriorates. This paper describes
the authors' test model using data on financial
development for a sample of 77 countries. The authors find
that the main predictions of the model are borne out in the
data: trade openness is associated with faster financial
development in wealthier countries, and with slower
financial development in poorer ones. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Do, Quy-Toan Levchenko, Andrei A. |
| author_facet |
Do, Quy-Toan Levchenko, Andrei A. |
| author_sort |
Do, Quy-Toan |
| title |
Trade and Financial Development |
| title_short |
Trade and Financial Development |
| title_full |
Trade and Financial Development |
| title_fullStr |
Trade and Financial Development |
| title_full_unstemmed |
Trade and Financial Development |
| title_sort |
trade and financial development |
| publisher |
World Bank, Washington, D.C. |
| publishDate |
2013 |
| url |
http://documents.worldbank.org/curated/en/2004/06/4964018/trade-financial-development http://hdl.handle.net/10986/14062 |
| _version_ |
1764430427100020736 |