How Does Trade Openness Influence Budget Deficits in Developing Countries?

Combes, Jean-Louis; Saadi-Sedik, Tahsin

doi:10.5089/9781451862638.001

Cited by 21 publications

(13 citation statements)

References 33 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…The openness‐inflation relationship is, therefore, further explored by making a distinction between de facto and ‘policy‐induced’ measures of openness. Following Combes and Saadi‐Sedik (), a proxy for ‘policy‐induced’ openness was generated by ‘purging’ the openness indicators of the influences of GDP per capita and population. That is, the de facto openness measures are regressed on real GDP per capita and population, and the residuals from this regression are taken as a proxy for ‘policy‐induced’ openness.…”

Section: Findings and Discussionmentioning

confidence: 99%

Trade Openness and Inflation Performance: A Panel Data Analysis in the Context of African Countries

Yiheyis¹

2013

African Development Review

View full text Add to dashboard Cite

This paper tests the hypothesis of a negative relation between openness and inflation in the context of African countries. A dynamic model of inflation in which openness enters alternately as an endogenous and exogenous variable is estimated with different panel data estimation procedures. The paper finds no robust evidence that openness served as a mechanism to restrain inflation in the region. On the contrary, the results suggest that increased openness, treated as an endogenous variable, is associated with higher inflation on holding constant such factors as food supply constraint and level of economic development which are found significant co-determinants.The link between inflation and openness has been the subject of numerous empirical studies. This section first outlines the channels through which openness is expected to influence inflation and then provides a brief survey of the related empirical literature. 2 Economic theory suggests several explanations for the hypothesized negative relationship between openness and inflation under certain assumptions. The major explanations are summarized as follows.Effect through greater availability of cheaper imports: Increased access to cheaper foreign goods (due to removal or reduction of trade barriers, such as tariffs and quantitative restrictions) lowers the cost of the consumption basket which is likely to increasingly comprise imported goods as the economy becomes more open. Also, the prices of domestically produced goods are liable to decrease not only from the competition from cheaper foreign final goods but also due to lower production costs resulting from lower input prices. These include cheaper intermediate imports and lower nominal wage demands, the latter arising from the lower cost of the consumption bundle. The higher the proportion of imports in the consumption basket, the greater the use of imported intermediates, and the higher the degree of nominal wage flexibility and of substitutability between domestically produced and imported goods, the greater the disinflationary effect is expected to become. In addition, as economies become more open and integrated into world markets, the threat of global competition weakens the market power of firms and of workers, putting downward pressure on domestic inflation (Rogoff, 2003).Effect via induced efficiency, productivity gains, and output growth: Increased openness is argued to reduce allocative inefficiency and to enhance productivity and economic growth. The heightened competition resulting from greater openness is expected to improve the allocation of resources among different sectors of the economy as countries move to engage in activities in which they have comparative advantage and as the composition of inputs used (imported versus domestic) changes. Greater openness might lead to productivity growth if it was, among others, to facilitate the transfer of technical knowledge, induce innovativeness, and promote dynamic efficiency (Grossman and Helpman, 1991; OECD, 1998;Edwards, 1998). Faster productiv...

show abstract

Section: Findings and Discussionmentioning

confidence: 99%

Trade Openness and Inflation Performance: A Panel Data Analysis in the Context of African Countries

Yiheyis¹

2013

African Development Review

View full text Add to dashboard Cite

show abstract

“…Moreover, a banking system with a high economic growth would take more activities outside of their traditional core activities so that the effect of institutions on the default risk is expected to be smaller. Finally, we also take into consideration of the economic integration that refers to the level of exposure of domestic sectors (including the banking system) to exogenous shocks (Combes and Saadi-Sedik, 2006;Epifani and Gancia, 2009). Concerning that, we argue that better institutions could limit the negative effect of exogenous shocks owing to the higher economic integration on the credit risk and the default risk in the banking system.…”

Section: Literature Reviewmentioning

confidence: 98%

Institutional quality and risk in the banking system

Nguyen

Schınckus

et al. 2021

JEFAS

View full text Add to dashboard Cite

Purpose This paper aims to offer an empirical study of the impact of institutional quality on the banking system risk and credit risk. Design/methodology/approach Applying cross-sectional dependent tests and stationary tests to check the property of our sample, the panel corrected standard errors model is recruited as the main estimator, while feasible generalized least squares, pool ordinary least squares (OLS), robust pool OLS and other estimators are used as a robustness check for an unbalanced panel data for 56 economies divided into three subsamples between 2002 and 2015. Findings The empirical results show several significant contributions. First, an improvement in institutional quality is an important factor to reduce the banking system risk. This effect of the institutions is less important in well-capitalized, highly profitable and in high-economic growth countries. This effect is also stronger in highly liquid banking systems. Notably, a better institutional quality helps to reduce the banking system risk in the highly concentrated banking system. Second, institutional quality has a significant negative relationship with the banking credit risk, especially in highly concentrated banking systems and in high-growth countries. This influence is weaker in highly liquid and well-capitalized banking systems. Finally, better institutions reduce the positive effect of trade openness, but it induces a higher credit risk for the banking system from the trade openness. Notably, a better institutional quality enhances the negative effect of foreign direct investment (FDI) inflow on both banking system risk and credit risk. These findings are documented for a global sample and three subsamples: low and lower-middle-income economies, upper-middle-income economies and high-income economies. Originality/value This study provides some recommendations, for policymakers, on the roles of institutions in the banking system and financial stability.

show abstract

“…This index is one of the main components of the Economic Freedom Index and covers both tariff and non-tariff measures that affect trade (see Appendix 1 for more details on this measure). This indicator 4 4 See Gnangnon (2017, 2018a, 2018b) for detailed explanation on the choice of ‘TP’ as the preferred indicator of trade policy, in spite of the limits of the latter. is preferred over other indicators of trade policy such as the standard trade openness measure [share of total trade (exports and imports) in goods and services in GDP], the Sachs and Warner (1995) measure of trade liberalisation, or the residual openness index (e.g., Combes & Saadi-Sedik, 2006; Esfahani & Squire, 2007).…”

Section: Model Specification On the Effect Of Aft Unpredictability Onmentioning

confidence: 99%

Effect of Aid for Trade Unpredictability on Trade Policy in Recipient-Countries

Gnangnon

2019

Arthaniti: Journal of Economic Theory and Practice

View full text Add to dashboard Cite

This article examines the effect of the unpredictability of Aid for Trade (AfT) flows on trade policy in 124 recipient-countries, of which 42 are least developed countries (LDCs), over the period 2002–2016. The analysis shows that while AfT flows exert a positive effect on trade policy liberalisation, AfT unpredictability induces the adoption of restrictive trade policies. These results apply to LDCs and other countries, although the magnitude of the negative effect of AfT unpredictability on trade policy liberalisation is higher for LDCs than for other countries. Furthermore, AfT unpredictability reduces the positive trade policy liberalisation effect of AfT flows. JEL: F13, F14, F35

show abstract

How Does Trade Openness Influence Budget Deficits in Developing Countries?

Cited by 21 publications

References 33 publications

Trade Openness and Inflation Performance: A Panel Data Analysis in the Context of African Countries

Trade Openness and Inflation Performance: A Panel Data Analysis in the Context of African Countries

Institutional quality and risk in the banking system

Effect of Aid for Trade Unpredictability on Trade Policy in Recipient-Countries

Contact Info

Product

Resources

About