Financial intermediation, trade agreements and international trade*

Abstract

Using a gravity model on a data set of 69 developed and developing countries over the period 1986–2006, we show that the trade‐promoting role of financial intermediation in the exporting country is mitigated when this country faces low exporting costs, that is when there is a regional trade agreement (RTA) between this country and the importing one. We also establish that this mitigating effect is reduced in financially constrained sectors, for which the role of financial intermediation remains crucial. Finally, we find evidence that the same trade‐boosting effect and the same interaction with RTAs prevail for financial intermediation in the importing country.

The impact of trade openness on the cost of financial intermediation and bank performance: evidence from BRICS countries

“…The ability of incumbents to block the development of financial markets is limited by trade and financial openness, and the new opportunities created by openness, which may generate sufficient additional profits that outweigh the negative effects of increased competition. Moreover, previous studies of Kong et al. (2021); Rathnayaka Mudiyanselage et al .…”

“…Diversification opportunities are granted to bank lenders that sell in different markets with varying business cycles. Also, diversification of trade openness opportunities allows the bank to benefit from alternative markets in case of loss in a sector (Nguyen and Vaubourg, 2021). Recent studies have demonstrated that globally integrated industries are likely to diversify investment (Bandura, 2020;Bazih and Vanwalleghem, 2021;Dauda et al, 2021;Ghosh and Sinha, 2021).…”

“…The model confirmed that unilateral and multilateral trade liberalizations promote the steady growth of all trading partners (Ahmad et al , 2021; Ashraf et al , 2021). Previous research indicated that trade openness significantly improves the performance of banks and the economic growth of countries (Ali et al. , 2021; Ho et al.…”

Preferential Trade Agreements, Geopolitics, and the Fragmentation of World Trade

“…8 That database uses the above-mentioned taxonomy of PTAs between 195 countries for the period 1950-2017. 9 This NSF-Kellogg database has been used in other subsequent studies (Nguyen and Vaubourg, 2021;Díaz-Mora, García-López, and González-Díaz, 2022) For more details, see https://kellogg.nd.edu/nsf-kellogg-institute-data-base-economic-integration-agreements. 9…”

Financial Reporting Quality and International Trade

“…Therefore, after controlling for sector fixed effects and especially year×sector level fixed effects, tariffs have little explanatory power. In untabulated tests, I get country-pair trade agreements information fromNguyen and Vaubourg [2021] and add a dummy variable in the regression. The dummy variable equals one if there is a trade agreement between origin and destination country in year t and equals zero otherwise.…”