Effect of financial development on international trade in Africa: Does measure of finance matter?

Yakubu, Awudu Sare; Aboagye, Anthony Q.Q.; Mensah, Lord; Bokpin, Godfred A.

doi:10.1080/09638199.2018.1474246

Cited by 36 publications

(28 citation statements)

References 30 publications

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“…1 Trade openness is proxied by the sum of imports and exports as a percentage of GDP. Following Ibrahim and Alagidede [9] and Sare et al [18], this is taken to measure the level of countries' integration with the international markets. We also use two measures of financial sector development which have been extensively used in recent literature [10,18]: private and domestic credits to GDP ratio.…”

Section: Data and Preliminary Findingsmentioning

confidence: 99%

“…Following Ibrahim and Alagidede [9] and Sare et al [18], this is taken to measure the level of countries' integration with the international markets. We also use two measures of financial sector development which have been extensively used in recent literature [10,18]: private and domestic credits to GDP ratio. First, the private credit refers to financial resources provided to the private sector by financial corporations, such as through loans, purchases of nonequity securities and trade credits.…”

Section: Data and Preliminary Findingsmentioning

confidence: 99%

“…Furthermore, Sare et al [18] examined the determinants of international trade measured by openness and exports in Africa relying on data for 46 countries over the period 1980-2015. Results from their system generalized method of moments suggest that financial development proxied by private credit does not promote openness, while domestic credit positively affects international market integration.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

On the determinants of trade openness in low- and lower–middle-income countries in Africa: how important is economic growth?

2019

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The existing literature highlights the determinants of trade openness with disregard to the income classifications of countries in examining whether the determinants differ given their income levels. This study, therefore, reexamines the drivers of trade openness in Africa relying on panel data with special focus on the role of economic growth. More specifically, we perform a comparative analysis of the factors influencing trade openness for low-income and lowermiddle-income countries using the system generalized method of moments. Our findings suggest that, while economic growth robustly enhances openness in low-income countries, in the case of lower-middle-income countries, the impact is not robust and largely negative suggesting that higher growth is associated with less openness. We also find that, economic growth-openness nexus for the lower-income countries exhibits non-linearities and inverted U-shaped relationship in particular. Thus, while increases in real GDP per capita enhance openness, beyond an estimated threshold point, any increases in economic growth dampen openness. We discuss key implications for policy.

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Section: Data and Preliminary Findingsmentioning

confidence: 99%

Section: Data and Preliminary Findingsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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On the determinants of trade openness in low- and lower–middle-income countries in Africa: how important is economic growth?

2019

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“…For the most part, developing countries including those in SSA reap greater benefits of financial development on exports in both sectors than the developed economies. Sare, Aboagye, Mensah, and Bokpin (2018) examine the impact of financial development on international trade in 46 African countries over the period 1980-2015. Evidence from their study shows differential effects of finance on trade. For instance, whereas private credit inhibits trade, domestic credit significantly spurs international trade flows.…”

Section: Introductionmentioning

confidence: 99%

Financial development, sectoral effects, and international trade in Africa: An application of pooled mean group (PMG) estimation approach

2018

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Existing studies on financial development–international trade nexus have centred on the implications of finance for trade without investigating the transmission channels of finance on trade. More importantly, how financial sector development mediates the relationship between sectoral value additions and trade remains an unexplored area. This study addresses these gaps in the literature relying on panel data from 46 countries in Africa spanning 1980–2016. Our evidence based on the pooled mean group estimations suggest that, for both the long and short run, although the impact of sectoral value additions is contingent on the proxy of trade, financial sector development does not have a significant effect on international trade. This holds irrespective of the measure of finance and international trade. However, after controlling for the transmission channels, a coexistence of a negative long run substitutionarity between finance and trade is found, and this is invariant of the indicator of finance and trade. On the mediation role, we find that higher sectoral value additions dampen the deleterious effect of finance on trade with huge impact emanating from the service sector. We discuss some key implications for policy.

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“…While banks are typically the largest and most important financial institutions, investment banks, insurance companies, mutual funds, pension funds, venture capital firms, and many other types of nonbank institutions start to play a substantive role. According to Adu, Marbuah and Mensah (2013) and Sare et al (2018), the empirical results may lead to significantly different conclusions depending on the proxy used for financial development. Therefore, relying solely on the single, bank-centred measure may be a simplification.…”

Section: Discussionmentioning

confidence: 99%

Trade-Finance Nexus: Was it Distorted in the Aftermath of the Global Financial Crisis?

Wajda-Lichy¹,

Kawa

2018

EBER

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The objective of this article is to examine whether the trade-finance nexus was distorted in the aftermath of the global financial crisis. Research Design & Methods: We estimated OLS regressions between trade and finance for 36 countries. The Quandt-Andrews breakpoint test and Bai-Perron multiple breaking point test were used to test for structural breaks in the trade-finance nexus. Findings: The results show that a structural break in the trade-finance relationship occurred in 2008 in the majority of the examined countries. The structural changes were relatively more often identified in middle-income countries than in high-income ones. This finding confirms our suppositions inferred from the stylized facts that reactions of international trade and financial development in the crisis era differed across the countries depending on their level of development. Implications & Recommendations: Our study partly fills the gap between theory-based approaches to the trade-finance nexus and empirical evidence. It also emphasizes the need of a revision of traditional theoretical arguments, including those referring to the linkages between the financial and the real sides of economy. Contribution & Value Added: Our article contributes to the theoretical discussion in three ways. Firstly, we examine a still bothering question on the relationship between the financial and the real sides of economy. Secondly, while the main strand in the literature deals with finance-growth and trade-growth interactions, we focus directly on the trade-finance linkages. Thirdly, our finding that a break in the trade-finance nexus was more pronounced for the middle-income countries may provide some insight into better understanding of the global financial crisis of 2008 and its consequences. Article type: research article

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Effect of financial development on international trade in Africa: Does measure of finance matter?

Cited by 36 publications

References 30 publications

On the determinants of trade openness in low- and lower–middle-income countries in Africa: how important is economic growth?

On the determinants of trade openness in low- and lower–middle-income countries in Africa: how important is economic growth?

Financial development, sectoral effects, and international trade in Africa: An application of pooled mean group (PMG) estimation approach

Trade-Finance Nexus: Was it Distorted in the Aftermath of the Global Financial Crisis?

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