Financial Openness Research Articles

Quantifying the Impact of Natural Resources on Sustainable Growth in Developing Economies: Evidence from Panel Nonlinear ARDL Technique

The main purpose of current research is to analyze the impact of natural resource exploration on sustainable growth in developing economies. Annual panel data of 57 developing countries from 2000 to 2021 has been used for research analysis. First, this study uses a simple Panel Autoregressive Distributive Lag (ARDL) estimation technique to examine the long-run and short-run link among the variables. The results depict that in the long run natural resource exploration has a significant negative impact on sustainable growth. This finding supports the presence of the resource curse hypothesis. Besides this, the present study decomposes the policy variable (mining contribution index) into its two shocks i.e. positive shock and negative shock by applying a panel non-linear ARDL approach. The long-run outcomes depict that both the coefficients of partial positive and partial negative sums of natural resource rents are negative and significant. Furthermore, the research outcomes explain that financial openness and international trade have a substantial and positive impact on sustainable progress. The policy implications for current research are to avoid bad rent-seeking behaviors and to escape from non-productive activities to achieve sustainable development. Furthermore, there is a dire need to adopt and support environmentally friendly policies.

Financial Openness and Trade (Real) Openness: Should We Open up Both Markets?

This study examines the 'interdependence' between financial openness and trade (real) openness, as well as the macroeconomic determinants of such relationship from a general equilibrium perspective (viz. the balance of payments constraint). The macroeconomics factors are national income, exchange rate, and interest rate. The data cover 124 countries over a period spanning between 1970 and 2019. The 'interdependence' between financial and trade openness is captured by a positive Pearson correlation in most of the countries (i.e. between 60% and 79% of the countries). However, a more precise measure of a bidirectional causality between both openness exists in only 35% (44 countries) of 124 countries. The empirical results show that exchange rate explains negatively the estimated correlation coefficients between financial and trade openness, as well as for low income countries. While, the interest rate increases the likelihood of their bidirectional causality results. This study provides policy insights related to both the financial and real markets.

Nexus between Innovation–Openness–Natural Resources–Environmental Quality in N-11 Countries: What Is the Role of Environmental Tax?

This research investigates the intricate relationship between financial openness, natural resources, and carbon neutrality in the N-11 countries. It provides insights into how environmental tax and innovation can drive carbon neutrality in these nations, thus advancing our understanding of the nexus among financial openness, natural resources, and carbon neutrality. The study aims to offer policymakers perspectives on formulating policies to foster sustainable economic development and environmental conservation in the N-11 nations. The discourse highlights the environmental implications of foreign direct investment (FDI) and trade openness, revealing a complex interplay between economic development, technological innovation, and environmental sustainability. While FDI can facilitate technological transfers and managerial advancements that enhance resource efficiency and promote environmentally friendly practices, its environmental impact varies based on regulatory frameworks and enforcement mechanisms. In countries with weak environmental regulations, FDI may lead to negative outcomes such as pollution hotspots, resource depletion, and ecosystem degradation. Similarly, trade openness can exacerbate environmental degradation through increased production, energy consumption, and waste generation. However, both FDI and trade openness can contribute positively to environmental sustainability when coupled with effective environmental policies, investment in green technology, and the promotion of sustainable practices. Thus, policymakers must strike a balance between economic development and environmental protection by implementing stringent environmental regulations, promoting clean technology transfer, and fostering sustainable development practices domestically and internationally. This research offers valuable insights for policymakers aiming to navigate the complexities of achieving carbon neutrality while ensuring sustainable economic growth in the N-11 countries.

Temporal and spatial heterogeneity of resource misallocation in Chinese banks and its influential factors

This study measures the degree of resource misallocation in Chinese banks and investigates its temporal and spatial variations. Our findings suggest that resource misallocation is prevalent in Chinese banks. The primary source of this misallocation is inter-regional disparities, but both regional imbalances and the misallocation of resources have decreased over time. Multiple factors contribute to the heterogeneity of resource misallocation within banks. While financial development, human capital, and ownership structures exacerbate the misallocation, fiscal decentralization, financial openness, industrial structure, and urbanization levels alleviate it. However, the intensity and direction of these effects differ across regions, leading to visible spatial disparities.

Do natural resources bestow or curse the environmental sustainability in Cambodia? Nexus between clean energy, urbanization, and financial deepening, natural resources, and environmental sustainability

The management and utilization of natural resources can either promote or hinder environmental sustainability. While they can provide the basis for renewable energy, sustainable agriculture, and conservation efforts, their extraction and use can also lead to environmental degradation, pollution, and depletion. This study examines the intricate relationship between natural resource rent (NRR) and environmental sustainability in Cambodia. Specifically, the study investigates the impacts of financial openness, institutional quality, financial deepening, and urbanization on this relationship. Employing both symmetric and asymmetric frameworks, the research assesses the explanatory power of these variables on environmental sustainability. Study implemented novel cointegration test offered by Bayer-Hancked and Makki, the long-run and short-run coefficients has derived through the implementation of augmented autoregressive Distributed Lagged (AARDE) and Nonlinear Autoregressive Distributed Lagged (NARDL). The study reveals the long-term association between NRR and environmental indicators, additionally the findings uncover both positive and negative correlations between NRR and environmental sustainability, emphasizing the challenge of managing natural resources effectively. Furthermore, the study highlights the potential adverse environmental effects of financial expansion, suggesting that increased investment in certain industries and higher consumption patterns may exacerbate environmental degradation. It also underscores the role of foreign direct investment (FDI) in promoting renewable energy technologies and sustainable practices, ultimately reducing CO2 emissions. Additionally, the study stresses the importance of institutional quality and transparent financial systems in encouraging sustainable practices and mitigating carbon emissions. It advocates for Cambodia to prioritize institutional strength and financial openness to achieve long-term environmental sustainability, while addressing the challenges posed by financial deepening and urbanization.

Research on the Financial Cooperation and Economic Growth—Evidence from China and ASEAN

China has actively carried out financial cooperation with countries along the route, utilizing the new framework of financial cooperation to inject new momentum into economic growth. This paper measures the development level of China-ASEAN financial cooperation with the help of the China-ASEAN Financial Cooperation Index from 2000 to 2022, and empirically examines the impact of China-ASEAN financial cooperation on the economic growth of ASEAN countries through the fixed effect model. The study shows that China-ASEAN financial cooperation significantly contributes to the economic growth of ASEAN countries by advancing financial development, improving the degree of financial stability, and expanding financial openness. Heterogeneity analysis found that the promoting effect of China-ASEAN financial cooperation on economic growth is more pronounced in countries with high institutional quality and high economic development level.

Economic resilience: Why some countries recover more robustly than others from shocks

Economic resilience – the tendency of economies to bounce back from negative shocks – has never been more important, given the growing prevalence and frequency of such shocks. The existing literature on its determinants are inconclusive. We therefore reanalyze those determinants for a large sample of countries, first collectively and then separately for advanced countries and emerging markets. Deeper recessions are followed by stronger recoveries, consistent with Friedman's plucking model of the business cycle. In contrast, longer recessions are associated with weaker recoveries, as if more extensive destruction of human capital and other hysteresis effects limit resilience. Trade openness and exchange rate flexibility, which facilitate the substitution of external demand when domestic demand is weak, are positively associated with resilience, as are a strong current account balance and ample foreign reserves. Financial openness and rapid private credit growth in the preceding expansion contribute negatively, reflecting their legacy of financial problems.

Green economic growth in BRIC and CIVETS countries: The effects of trade openness and sustainable development goals

This study aims to analyze the impact of trade openness and Sustainable Development Goals, Financial Development, and Technology on the economic growth of Brazil, Russia, India, China and Colombia, Indonesia, Vietnam, Egypt, Turkey, South Africa countries. The present analysis employs a balanced panel data set from 1996 to 2022. This study also uses various tests, such as the Johansen–Fisher cointegration and Granger causality test. The study's findings suggest that economic growth, trade openness, Sustainable Development Goals, financial development, inflation, technology, labor forces, and financial openness have a long-term relationship among them. In the long run, a positive relationship exists between economic growth, trade openness, and the sustainable development goals index in (BRIC) and (CIVETS) countries. Based on the heterogeneous panel non-causality tests, the findings demonstrate that trade openness and Sustainable Development Goals are a unidirectional causality between trade openness, Sustainable Development Goals, and economic growth.

Central bank swaps and foreign reserves: From the perspective of a global network

Central bank swaps have flourished since the 2008 financial crisis and the intertwining swap lines have formed a typically complex network, in which bilateral swap relationships have been deeply embedded. This paper constructs a global swap network of central banks and then utilises network indices to measure the network positions and resources of swap central banks. From the perspective of the global swap network, it employs the Spatial Durbin Model to empirically estimate both direct and indirect effects of swap positions on foreign reserves and then further explores the applicability of these effects. The findings confirm a negative impact of network positions on foreign reserves. Besides, swaps can significantly substitute for foreign reserves of relevant banks by back-up rescue and demonstration mechanisms. The fact that spatial spill-over effects are much larger than direct effects justifies the necessity to assess swap performance from a spatial perspective. Applicability tests show that the substitution effect is larger in less developed countries and those with lower foreign exchange stability and financial openness. The conclusions have important policy implications for the construction of a global financial safety net and the coordination of counter-measures to cope with crises.

Economic globalization and unemployment: Evidence from high‐, middle‐ and low‐income countries

AbstractThis study intends to empirically evaluate the effects of economic globalization and its components (i.e. trade and financial openness) on unemployment in high‐, middle‐ and low‐income countries from 1991 to 2020. Further, it considers real GDP per capita (sectoral divisions of income, i.e. agriculture, industry and service sector) and urbanization as control variables in the unemployment function. On the empirical front, this study employs the Panel Dynamic Simulated ARDL model and the Kernel‐Based Regularized Least Squares for long‐run influence estimations. The emanating outcome of these analyses states that economic globalization destroys employment opportunities for low‐income countries as it enhances unemployment in the long run. However, in high‐ and middle‐income countries, economic globalization creates employment, which implies reducing unemployment in the long run. The result also indicates that trade and financial openness destroy employment opportunities in low‐income countries. Although trade openness in middle‐income countries shows the same effect, financial openness does not mimic the same. For high‐income countries, trade openness reduces unemployment, but financial openness fosters it. Therefore, these findings indicate that to keep unemployment at a low level, policies related to the opening up of the economy in terms of factor mobility, offshoring, outsourcing and international trade need to be implemented in low‐income countries. Moreover, a similar consideration is needed for high and middle‐income countries to avoid faraway repercussions on unemployment due to becoming a peripheral country.

Foreign trade and China’s yield curve during the COVID-19 pandemic: An analysis based on an extended arbitrage-free Nelson–Siegel model

We propose a general extension of the arbitrage-free Nelson–Siegel (AFNS) model by incorporating exogenous factors into the unspanned AFNS model. Regarding the number of people newly diagnosed with COVID-19 as an exogenous shock and net foreign purchases of treasury bonds of different maturities as unspanned factors, we study the impacts of the COVID-19 pandemic and the trading behavior of foreign investors on the yield curve in China. Our empirical results show that the COVID-19 pandemic significantly increases net foreign purchases of short-to-medium-term treasury bonds while significantly reducing the long-term treasury yield. Net foreign purchases of treasury bonds of different maturities cause large shifts with different shapes in the yield curve and have different effects on the excess returns of bonds of different maturities. This paper provides an important reference for risk management, investment decision-making and risk assessment of China’s financial opening policy for its treasury bond market.

Role of financial openness in Ghana’s financial sector development episode

PurposeThis paper aims to reexamine the relationship between financial openness and financial development in Ghana.Design/methodology/approachThe study applied maximum likelihood estimation and autoregressive distributed lag approach and tested Granger causality using quarterly data from 1990:1 to 2020:4.FindingsThis study revealed a long-run equilibrium relationship between financial openness and development, indicating that financial openness is a critical factor in Ghana’s financial development. Therefore, the study recommends with caution that policies aimed at promoting financial openness could be an effective way to encourage sustainable financial development in Ghana, as financial openness alone may not bring the desired outcome.Research limitations/implicationsThe study contributes to the existing body of knowledge by providing empirical evidence of the link between financial openness and financial sector development in Ghana. Future research could delve deeper into the mechanisms through which financial openness affects financial development, exploring potential channels and transmission mechanisms.Practical implicationsThe findings suggest that policymakers, particularly the Ministry of Finance and the Bank of Ghana, should prioritize policies aimed at promoting financial openness. This includes continued efforts toward financial liberalization and creating an environment conducive to domestic and international financial transactions. Moreover, policies aimed at increasing trade openness, boosting real GDP and maintaining moderate real interest rates are essential for fostering financial sector development.Social implicationsEnhancing financial sector development can have significant implications for society, including increased access to financial services, improved economic opportunities and enhanced overall economic stability. By promoting financial openness and development, policymakers would contribute to poverty reduction, job creation and overall socio-economic development. The study bridges the gap between theory and practice by providing empirical evidence supporting the theoretical proposition that financial openness stimulates financial sector development.Originality/valueThis study fills a crucial gap in the literature on the effects of financial openness on Ghana’s financial sector development. It focuses on Ghana, which liberalized its financial sector in 1988 as part of the overall economic reforms in 1983, and this justifies the starting point of this paper in 1990, as there are no adequate data before 1990. The study uses principal component analysis to construct an index that measures financial development. The study considers the recent financial crises in Ghana in 2017 and underscores the importance of understanding the link between financial openness and financial development, which becomes useful for policymakers and researchers studying financial system development in sub-Saharan Africa which includes Ghana.

Effects of trade openness on environmental quality: evidence from developing countries

ABSTRACT This paper uses the Bayesian model averaging approach to investigate the effects of trade openness on environmental quality in 64 selected developing countries for the period of 2003–2017. We find no evidence of a statistically significant effect of trade openness on environmental pollution in our sampled developing countries; however, our results show weak support for the pollution haven hypothesis. Besides trade openness, our findings indicate that financial openness, renewable energy consumption, and capital abundance are essential drivers of environmental quality, which appear to reduce carbon dioxide (CO2) emissions. In contrast, inward foreign direct investment and income harm environmental quality in the context of the developing countries studied. Based on our overall results, this paper suggests some strong policy recommendations for improving the environmental quality to achieve sustainable development under the background of a low-carbon economy in these nations.

A VECM Analysis on the Impact of Agricultural Exports, Financial Openness and Trade Openness on India's Ecological Footprint

The 21st century has witnessed a surge in concerns surrounding environmental degradation, prompting investigations into its contributing factors. This study delves into the impact of agricultural exports and financial openness on the ecological footprint of India, utilizing time series data for a comprehensive analysis. Employing unit root tests and the VECM model for cointegration analysis, the study offers compelling insights. The findings reveal a positive association between agricultural exports and a reduction in India’s ecological footprint in both the long and short run, suggesting that increased agricultural exports contribute to environmental sustainability. The study demonstrates a positive association between financial openness and the ecological footprint, indicating that increasing financial openness leads to environmental sustainability in India. These findings align with previous studies highlighting the potential trade-offs between economic growth and environmental protection. Conversely, the study identifies trade openness is negatively associated with the Ecological Footprint, increase in trade openness leads to an increase in environmental degradation. Furthermore, the study identifies economic growth as an additional factor significantly impacting India’s ecological footprint. These findings underscore the complex interplay between various economic and environmental forces. This study contributes to the ongoing dialogue on sustainable development by providing valuable empirical evidence on the specific case of Ind. The findings offer policymakers crucial insights for crafting strategies that promote economic growth while minimizing environmental harm.

Nonlinear effects of financial openness on financial development in ASEAN

This study examines the nonlinear effects of financial openness on financial development in the representative ASEAN member states: Indonesia, Malaysia, the Philippines, Singapore, and Thailand. It reveals that with a low (high) level of financial openness, the assets and liabilities of foreign direct investment increase (decrease) equity market capitalization and the financial development, institution, and market indices. We identify a threshold of financial openness where its positive impact begins to diminish; beyond this point, excessive financial openness may become detrimental to financial development. By reassessing the risks associated with financial openness after the Asian financial crisis, we can understand that the potential toxicity amplified by financial openness may pose threats to financial development.

Foreign Financial Flows on Financial Efficiency in Sub-Sahara African Countries

The level of financial efficiency in Sub-Saharan Africa (SSA) remained low and incomparable to that of industrialized nations of the world, despite the supposed advantages of foreign capital inflows. This study examined the relationship between foreign financial inflows and financial efficiency in Sub-Saharan Africa against this backdrop (SSA). This study's specific goals are to look into how remittance inflows affected financial efficiency in SSA and how FDI inflows affected it as well. Out of 49 countries in Sub-Saharan Africa, 42 were chosen for the study using a purposive sampling technique and an ex-post facto research design. The study used pooled mean group, mean group, and dynamic fixed effects techniques to estimate the model parameters using panel autoregressive distributed lag (PARDL) methods of estimation. The findings revealed that remittance inflows have significant positive impact on the financial efficiency, while FDI inflows have insignificant influence on the financial efficiency. In addition, the combination of economic growth with remittance inflows yielded negative impact on the financial efficiency while the combination of economic growth with FDI inflows yielded a positive impact on financial efficiency. The study concluded that remittance and FDI inflows play vital roles in guaranteeing improvement in financial efficiency of Sub-Sahara African countries directly and indirectly through inclusive economic growth. The study recommended that financial openness policies, like removing restrictions and encouraging free flow of financial resources between entities in domestic economy and foreign economies to promote further foreign financial inflows and enhance further financial efficiency. It is also recommended that financial openness policy should be pursued alongside inclusive economic growth measures such as economic diversification policies.

Analyzing the Impact of Macroeconomic Variables on Financial Stability: Evidence from South Asian Economies

This research examines whether macroeconomic variables disturb the financial stability of SAARC countries in 1996-2022 using panel ARDL approach. We shape the financial stability as the dependent variable, and we have developed a PCA index of financial stability (principal component analysis). This study contains of macroeconomic models with a wide choice of possibly related variables for financial stability, using financial flows, financial openness, macroeconomic stability, exchange rate and economic growth on a sample of five countries between 1996 and 2022. Our experimental suggestion proposes that most of the macroeconomic variables have a positive impact on financial stability. Therefore, our outcomes support the view that the development of macro-economic policies and political programs should be part of financial improvement. All these variables may enhance the financial stability of the countries which are under consideration.

Original sin: Fiscal rules and government debt in foreign currency in developing countries

Developing economies often borrow abroad in foreign currency, which exposes them to the problem of “original sin.” Although the literature on the issue is relatively extensive, there is limited discussion about the role of fiscal frameworks, such as fiscal rules, in addressing original sin. Using a panel of 59 developing countries from 1990-2020 and applying the entropy balancing method, this study reveals that fiscal rules play a crucial role in reducing government debt in foreign currency, and that the effects are statistically and economically significant and robust. Furthermore, we find that the effectiveness of fiscal rules in curbing original sin is enhanced by factors such as the strengthening of the rule itself, improved fiscal discipline before the reform’s adoption, financial development, financial openness, exchange rate flexibility, the level of economic development, and sound institutions. Finally, transmission channels analysis reveals that the effect of fiscal rules on original sin is driven by fiscal and monetary policy credibility.

Integrating Latin America into the Global Economy: Strategies for Regional Economic Development

The 1990s marked a transformative era for Latin American economies, characterized by significant political and institutional reforms aimed at increasing trade and financial openness. The economic development model adopted during this period emphasized market-led growth through liberalization measures, significantly reducing the state's role in the economy. However, by the decade's end, the anticipated economic and social benefits had not materialized in many countries, prompting a reevaluation of development policies. This paper revisits the theoretical frameworks proposed by the Economic Commission for Latin America and the Caribbean (ECLAC), grounded in Keynesian economics and a historical-structural methodology. ECLAC's analysis focused on the implications of deregulation and the liberalization of economic and financial policies, advocating for a regional development strategy that balances economic growth with equitable income distribution, employment opportunities, technological advancement, and social fairness. By analyzing Latin America's integration into the global economy in the 1990s, this study explores ECLAC's theoretical perspectives as viable alternatives to the reforms implemented during that period. Employing a bibliographic and reflective analytical approach, the paper underscores ECLAC's contributions to understanding the socioeconomic challenges and opportunities facing the region.

Exposure to Dollar, financial Openness, and the heterogeneous impact of US monetary spillover

This paper studies how country heterogeneities, especially in their (1) net exposure to dollar debt and (2) financial openness affect the propagation of US monetary shocks into peripheral advanced and emerging economies. We contribute to the understanding of how interest rate and GDP responses of emerging countries depend on both their dollar liability and financial openness, as well as the interaction between these two factors. Specifically, we find that economies with higher debt dollarization have higher interest rate responses to contractionary US monetary shocks to prevent negative balance sheet effects. We also find that GDP decreases by more for economies with high debt dollarization if their financial openness is high. Using capital control as the de jure measure of financial openness, we obtain similar results that GDP decreases by more for countries net short of dollar if capital control is low, and at the same time, GDP is higher for countries with higher capital control if they are more indebted in dollar. Combined, these imply that capital control helps dampen negative US monetary spillover, and the benefit from imposing capital control is larger for countries that are more indebted in dollar.