🔗

Index-only document

This document is listed as metadata with a link to its original source: the licence does not allow redistribution or we do not generate a preview. Consult the document on the source site.

Go to the original site ↗

Source: World Bank Open Knowledge Repository

Why don't we host this file?

The licence of this document does not allow us to redistribute copies. We list its verified metadata and link you to the official source, where the file is always up to date.

Trade and Financial Development

World Bank, Washington, D.C.

🛡CC BY 3.0 IGOPermitted use with attribution

pages: 30
Format: PDF
Size: 353 KB
Views: 0
Downloads: 0

Source: World Bank Open Knowledge Repository ↗ · Report an issue

Shared byDivya Mishra›

Abstract

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.

Index-only document

Related documents

Strengthening Ties with Indigenous Communities

Moldova Financial Sector Assessment Program

Climate Change, Urban Expansion, and Food Production

How Firms Use Corporate Bond Markets under Financial Globalization

Growing Markets through Business Training for Female Entrepreneurs

Petroleum Prices in Bangladesh : A Need for Regular and Appropriate Adjustments