Does Financial Development Affect the Economic Growth Gains from Trade Openness?

Abstract

This article examines the relationship between trade openness, financial development and economic growth on a panel of four North African countries (Tunisia, Morocco, Algeria and Egypt), over a 5-year period from 1998 to 2017. Using dynamic panel data model estimated by means of the Generalized Method of Moments (GMM), we found that trade openness is positively related to economic growth. We also found that trade openness appears to be working as a complement to financial development and, moreover, that the effect of trade openness is more pronounced in the presence of the financial development variable. The findings suggest that trade openness and financial development are important elements in determining economic growth in these countries. Therefore, the policy-makers should continue to patronize the development of their financial sector and to allow more trade openness in order to achieve a high and sustainable economic growth.