Linkages between Financial Development and Openness: panel evidence from developing countries.

Abstract

In this paper, we contribute to existing literature on financial development and openness by, sampling twenty-nine African countries with data spanning from 1987 to 2008. Using panel empirical techniques, we provide evidence of bi-directional causality between trade openness and financial openness; albeit, the former, bearing much more impact on the later. Neither capital openness nor trade openness, significantly account for financial development. Our results are robust to variable interaction via Principal Component Analysis. For sampled countries, policy towards trade openness should be effective in view of inviting private capital flows.Trade Openness, Financial Openness, Financial Development, Panel, Africa