Trade and financial openness and their impact on financial development

Abstract

PurposeThe purpose of this paper is to assess the impact of trade and financial sector openness and their simultaneous openness on financial development of South Asia.Design/methodology/approachTo serve the purpose, a panel data set of four South Asian economies, namely, India, Pakistan, Sri Lanka and Bangladesh, was constituted for the period spanning from 1996 to 2015. Along with the conventional panel unit root test and co-integration test, pooled mean group estimations were used to formulate the empirical findings.FindingsThe findings suggested a significant negative impact of financial openness and significant positive impact of trade openness on the financial development of South Asia. The empirical evidence did not support simultaneous openness of trade and financial sector for the studied region.Originality/valueThe study contributes to the existing literature by analyzing the effect of trade and financial openness on financial development of South Asia. The study provides substantial evidence to the stakeholders for formulating policies that can boost financial development of the region.