The finance–trade nexus revisited: Is the global trade slowdown also a financial story?

Gächter, Martin; Gkrintzalis, Ioannis

doi:10.1016/j.econlet.2017.05.037

Cited by 21 publications

(19 citation statements)

References 14 publications

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“…Indeed, from Table 5, it is clear that the positive effect is remarkably larger than the deleterious impact at low levels. Thus, relative to earlier studies (see Gächter & Gkrintzalis, 2017; Kim, Lin, & Suen, 2010b; Leibovici, 2016), this evidence suggests that the relationship between finance and international trade is bifurcated by the existence of a unique threshold value. Further findings however show that economic growth negatively affects exports.…”

Section: Findings and Discussioncontrasting

confidence: 67%

“…The traditional technique to examining such threshold effect of financial development on international trade have involved introducing a quadratic term of financial development into the trade equation in addition to some control variables (see for instance Gächter & Gkrintzalis, 2017). Specifically, such a technique regresses the following equation:

\begin{matrix} true \\ {italicTR}_{t} = ϒ_{o} + ϒ_{1} {italicFD}_{t} + ϒ_{2} {FD}_{t}^{2} + ϒ_{3} X_{t} + ε_{t} \\ t = 1, 2, \dots \dots \dots, T, \end{matrix}

…”

Section: Data and Empirical Strategymentioning

confidence: 99%

“…Empirically, Gächter and Gkrintzalis (2017) examine the role of nonlinearities in the finance–trade nexus relying on panel data spanning 1960–2011 and find a trade–enhancing effect of finance. By including a quadratic square term of finance in the trade equation, Gächter and Gkrintzalis (2017) observe a much stronger effect of finance on exports. Further evidence from their dynamic panel estimations qualitatively confirm the results.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Threshold Effects of Financial Sector Development on International Trade in Africa

Sare

2019

Int. J Fin Econ

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Earlier studies on threshold effects of financial sector development on international trade have relied on rudimentary approach which assumes exogenous inclusion of quadratic square terms of finance. However, findings from such studies are not instructive as it obscures country's unique domestic conditions such as differences in the levels of financial sector development. By relying on 46 countries in Africa over the period 1980–2016, this study employs a sample splitting and threshold estimation approach which allows finance–international trade to be mediated by the level of domestic financial sector development. We find evidence of threshold effects for a number of the countries suggesting that the precise impact of financial development on international trade is threshold–specific given the various indicators of finance. The study highlights that whether finance supports or limits international trade crucially depends on the attainment of a certain threshold which is both country and indicator–specific.

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Section: Findings and Discussioncontrasting

confidence: 67%

\begin{matrix} true \\ {italicTR}_{t} = ϒ_{o} + ϒ_{1} {italicFD}_{t} + ϒ_{2} {FD}_{t}^{2} + ϒ_{3} X_{t} + ε_{t} \\ t = 1, 2, \dots \dots \dots, T, \end{matrix}

…”

Section: Data and Empirical Strategymentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Threshold Effects of Financial Sector Development on International Trade in Africa

Sare

2019

Int. J Fin Econ

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“…The future studies in this field of trade-finance nexus could be also enhanced if a larger group of countries in a longer time span, as well as a conceivable endogeneity in this relationship were considered. Moreover, possible non-linearities in the above-mentioned nexus could be included (Gries, Kraft, & Meierrieks, 2009;Gächter & Gkrintzalis, 2017). The crisis emphasized the necessity of the revision of traditional theoretical approaches, including those referring to the linkages between the financial and the real sides of economy.…”

Section: Discussionmentioning

confidence: 99%

Trade-Finance Nexus: Was it Distorted in the Aftermath of the Global Financial Crisis?

Wajda-Lichy¹,

Kawa

2018

EBER

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The objective of this article is to examine whether the trade-finance nexus was distorted in the aftermath of the global financial crisis. Research Design & Methods: We estimated OLS regressions between trade and finance for 36 countries. The Quandt-Andrews breakpoint test and Bai-Perron multiple breaking point test were used to test for structural breaks in the trade-finance nexus. Findings: The results show that a structural break in the trade-finance relationship occurred in 2008 in the majority of the examined countries. The structural changes were relatively more often identified in middle-income countries than in high-income ones. This finding confirms our suppositions inferred from the stylized facts that reactions of international trade and financial development in the crisis era differed across the countries depending on their level of development. Implications & Recommendations: Our study partly fills the gap between theory-based approaches to the trade-finance nexus and empirical evidence. It also emphasizes the need of a revision of traditional theoretical arguments, including those referring to the linkages between the financial and the real sides of economy. Contribution & Value Added: Our article contributes to the theoretical discussion in three ways. Firstly, we examine a still bothering question on the relationship between the financial and the real sides of economy. Secondly, while the main strand in the literature deals with finance-growth and trade-growth interactions, we focus directly on the trade-finance linkages. Thirdly, our finding that a break in the trade-finance nexus was more pronounced for the middle-income countries may provide some insight into better understanding of the global financial crisis of 2008 and its consequences. Article type: research article

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“…Developed financial markets should depict features like less market frictions, more liquidity, a large number of buyers and sellers, a large number and variety of financial instruments to be traded, internationalization and easy execution of transactions with no or minimal transaction costs (Greenwood & Smith, 1997). While a rigorous measure can be developed to check the level of financial markets development of a country and some are available also from the recent past, but almost all the previous researches have represented financial markets development of a country with a single ratio (stock/bond market capitalization to GDP) (Arestis et al, 2001;Beck, 2002;Gächter & Gkrintzalis, 2017). Although stock market of a country is the most important among capital markets at least most of the times, still it cannot depict acutely the exact level of financial markets development in a country.…”

Section: Literature Review 21 Financial Developmentmentioning

confidence: 99%

Financial Development and International Trade inside Asia

2019

EJBM

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This study attempts to document the impact of "Financial development" on international trade between selected Asian economies and rest of the Asian region. Financial development index is used to represent financial development level which includes four dimensions from two perspectives; institutional and market. An "overall financial development index" is calculated by combining institutional and market level financial development indices. Effect of market and institutional dimension is measured separately on international trade of Asian economies with rest of the Asia. Different macro-variables are controlled including GDP per capita, total population, Inward FDI flow, Outward FDI flow and real effective exchange rates for modeling. Sample includes data for twenty years ranging from 1997-2016 for 16 large economies of Asia. Panel data modeling technique "fixed effects regression" is used with two different proxies of dependent variable. "Overall financial development" is found to have positive and significant relationship with international trade. Study confirms the robustness of the results to different measures of international trade. Results from fixed effects model confirm positive and significant relationship between all components of financial development and international trade, and between overall financial development and international trade in Asian economies. Singapore, Japan and South Korea represent highest levels of financial development while other countries showed relatively less development financial development level according to measure used in this study. An important policy implication is if a country wants to grow economically by using instrument of trade policy especially exports improvement, then it has to develop its financial system to efficiently fulfill "international trade finance" needs.

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The finance–trade nexus revisited: Is the global trade slowdown also a financial story?

Cited by 21 publications

References 14 publications

Threshold Effects of Financial Sector Development on International Trade in Africa

Threshold Effects of Financial Sector Development on International Trade in Africa

Trade-Finance Nexus: Was it Distorted in the Aftermath of the Global Financial Crisis?

Financial Development and International Trade inside Asia

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