Trade Openness, Financial Development and Economic Growth in Emerging Market Economies: A Panel Causality Analysis
Mehmet Zeki Ak, Veysel İnalSince the early 1980s, many developing countries have abandoned the closed economy model and adopted the open growth model. The aim of the outward growth model was to “increase the degree of integration of the national economy with the world economy in absolute terms”. It can also be said that it keeps the growth rate of the economy high and permanent, and releases international trade in goods and services and capital flows. The historical experience of developing countries has shown that the new growth model makes the economy more fragile and more dependent on the international conjuncture. This study aims to examine the relationships between trade openness, financial development and economic growth by using data from 2002 to 2016 for 15 emerging market economies. In order to understand the causality relationship between the series, the Dumitrescu-Hurlin (2012) panel causality test and Kónya (2006) panel causality tests, which enable obtaining country-specific results, were preferred. According to the Dumitrescu-Hurlin (2012) panel causality test results, there is no causal relationship between commercial openness, financial development and economic growth in the period considered for selected countries. The Kónya (2006) causality test results in the specific countries of Colombia, Malaysia, the Philippines, Russia and Turkey show that financial development shows that a country’s economic growth causality. According to the Kónya (2006) causality test in Colombia, Malaysia, the Philippines, Russia and Turkey, there is a causality from financial development to economic growth. Other findings suggest that there is no causality between the variables. According to these results, it can be said that economic growth, trade deficit and financial development develop independently of each other.
Yükselen Piyasa Ekonomilerinde Ticari Açıklık, Finansal Gelişme ve Ekonomik Büyüme: Bir Panel Nedensellik Analizi
Mehmet Zeki Ak, Veysel İnal1980’lerin başından günümüze pek çok gelişmekte olan ülke, kapalı ekonomi modelini terk ederek, dışa açık büyüme modelini benimsemiştir. Dışa dönük büyüme modelinin amacı “ulusal ekonominin dünya ekonomisi ile bütünleşme derecesini mutlak olarak arttırmak” olmuştur. Şöyle de söylenebilir: Ekonominin büyüme hızının yüksek ve kalıcı olması için yapılması gereken uluslararası mal ve hizmet ticareti ile sermaye akımlarını serbest bırakmaktır. Gelişmekte olan ülkelerin tarihsel deneyimleri yeni büyüme modelinin ekonomiyi daha kırılgan ve uluslararası konjonktüre daha bağımlı hale getirdiğini göstermiştir. Bu çalışma ticari açıklık, finansal gelişme ve ekonomik büyüme arasındaki ilişkileri 15 yükselen piyasa ekonomisine için 2002-2016 dönemi verilerini kullanılarak incelemeyi amaçlamaktadır. Çalışmada, seriler arasındaki nedensellik ilişkisinin anlaşılması için Dumitrescu Hurlin (2012) panel nedensellik testi ve ülke özelinde sonuçlar elde etmeye olanak sağlayan Kónya (2006) panel nedensellik testleri tercih edilmiştir. Dumitrescu-Hurlin (2012) panel nedensellik testi sonuçlarına göre, seçili ülkeler için ele alınan dönemde ticari açıklık, finansal gelişme ve ekonomik büyüme arasında nedensellik ilişkisi olmadığını göstermektedir. Kónya (2006) nedensellik testine ait ülke özelindeki nedensellik sonuçları ise Kolombiya, Malezya, Filipinler, Rusya ve Türkiye’de finansal gelişmeden ekonomik büyümeye doğru nedenselliğin olduğunu göstermektedir. Elde edilen diğer bulgular değişkenler arasında nedenselliğin olmadığı yönündedir. Bu sonuçlara göre, ekonomik büyümenin, ticari açıklığın ve finansal gelişimin birbirinden bağımsız olarak geliştiğini söylenebilir
In this study, the causality relationship between financial development, commercial openness and economic growth was investigated for 15 emerging economies over the 2002-2016 period. A fundamental question of whether financial development and trade openness have a significant impact on growth, particularly for emerging market economies, is a matter that needs to be addressed and discussed. The main purpose of this study on financial development is to investigate any existence of causality between commercial openness and growth, and then to determine the impact of this causality, if any.
For the purpose of the study, the existence of a causality relationship between the series was analyzed with the Dumitrescu and Hurlin (2012) causality test, which takes into account heterogeneity and produces reliable results in case of cross-sectional dependence. In addition, Kónya (2006) panel causality analysis was conducted in order to reveal the results by country. In today’s world, due to increases in globalization, international trade levels and degree of financial integration, cross-sectional dependence should be taken into consideration. As in the global financial crisis that emerged in 2008, the economic shock in any country affects other countries differently. Therefore, it is necessary to test whether there is a horizontal cross-sectional dependence between the series before the analysis, since the results obtained in the analyses performed without considering the cross-sectional dependence will be deviant and inconsistent.
The empirical studies in the literature generally use the ratio of private sector loans to GDP, which are two measures of financial development, and the ratio of capital market capitalization to GDP. However, addressing financial development with only these two variables narrows the scope of financial development. In this study, the financial development index prepared by the IMF was used in order to overcome this deficiency. The index shows the level of development of financial institutions and financial markets in terms of depth, reach and efficiency.
There is a relatively short history of financial development and trade openness statistics that can be used in multi-country studies. Therefore, the study period was determined as 2002-2016. In addition, due to a lack of data, the horizontal section size of the data set is restricted to 15 countries. These issues constitute the main limitations of the study.
The empirical findings are made of three parts. In the first part, there is the horizontal section dependence and homogeneity test, in the second part, the unit root test, and in the third part, causality tests are presented. According to our results, the horizontal cross-section dependence and slope coefficients are heterogeneous in series and model. This means that changes in each of the 15 emerging economies have an impact on other countries. In addition to having horizontal cross-sectional dependence in series and model, the heterogeneity of slope coefficients necessitates that both problems should be considered in unit root tests. For this reason, the Smith et al. (2004) panel boostrap unit root test considering heterogeneity and cross-sectional dependence together was applied. According to the results of the unit root test, the FDI variable contains a unit root. When the difference of the series is taken, it becomes stagnant. In this sense, it is seen that FDI series I (1) carries the process.
The Dumitrescu and Hurlin (2012) causality test results showed that there is no causal relationship between financial development, commercial openness and economic growth. In the country-based results, the Kónya (2006) findings of causality generally coincide with the results achieved for the overall panel. Theer was one different result: in 5 countries (Colombia, Malaysia, the Philippines, Russia, and Turkey) financial development causes economic growth. The findings show that economic growth, commercial openness and financial development develop independently of each other. The absence of a causal relationship between the variables implies that the neoliberal commercial and financial liberalization policies, which were largely consecutively implemented after the 1980s, failed to achieve external growth.
