Open AccessFinancial Sector Development, Trade Openness and Economic Growth Nexus: Evidence from SAARC Countries
Author(s) -
Mirajul Haq
Publication year - 2021
Publication title -
forman journal of economic studies
Language(s) - English
Resource type - Journals
eISSN - 2710-2963
pISSN - 1990-391X
DOI - 10.32368/fjes.20211705
Subject(s) - openness to experience , nexus (standard) , economics , panel data , international economics , complementarity (molecular biology) , financial sector development , free trade , international trade , developing country , development economics , economic growth , psychology , social psychology , biology , computer science , econometrics , genetics , embedded system
To boost economic growth, SAARC countries resorted to trade liberalization policies since mid-1980s, therefore, now it is high time to evaluate the outcomes of this outward-oriented trade regime. Available literature confined the potential gain with the trading country’s status of the financial sector development. This study therefore empirically investigates the complementarity between domestic financial sector and trade openness for its growth effectiveness in the case of SAARC region. The empirical analysis basis upon the panel of six SAARC countries, using panel co-integration technique for the period 1980-2014. The empirical estimates of FMOLS and DOLS indicate that countries holding relatively developed domestic financial sectors enjoy larger gains from trade openness, which finally translates into economic progress. To be exact, the country’s domestic financial sector plays a complementary role between openness and growth in SAARC countries. Results hence suggest that SAARC countries need to lay higher emphasis on the development of the domestic financial sector.