توسعه مالی و گشودگی: شواهدی از پانل داده ها

This paper addresses the empirical question of whether trade and financial openness can help explain the recent pace in financial development, as well as its variation across countries in recent years. Utilising annual data from developing and industrialised countries and dynamic panel estimation techniques, we provide evidence which suggests that both types of openness are statistically significant determinants of banking sector development. Our findings reveal that the marginal effects of trade (financial) openness are negatively related to the degree of financial (trade) openness, indicating that relatively closed economies stand to benefit most from opening up their trade and/or capital accounts. Although these economies may be able to accomplish more by taking steps to open both their trade and capital accounts, opening up one without the other could still generate gains in terms of banking sector development. Thus, our findings provide only partial support to the well known Rajan and Zingales hypothesis, which stipulates that both types of openness are necessary for financial development to take place.

It is now widely accepted that financial development constitutes a potentially important mechanism for long-run growth (Levine, 2003, Demetriades and Andrianova, 2004, Demetriades and Hussein, 1996 and Goodhart, 2004).1 The frontier of the literature in this field is, therefore, shifting towards providing answers to the question of why some countries are more financially developed than others. One influential contribution in this literature, which is the main focus of our paper, is the hypothesis put forward by Rajan and Zingales (2003). These authors argue that interest groups and, in particular, industrial and financial incumbents frequently stand to lose from financial development. This is because financial development creates opportunities for new firms to become established, which breeds competition and erodes incumbents' rents. They suggest that incumbents' opposition to financial development will be weaker when an economy is open to both trade and capital flows. Not only does trade and financial openness limit the ability of incumbents to block the development of financial markets but may also create incentives for them to adopt a different stance towards financial development. Importantly, Rajan and Zingales (2003) suggest that trade openness without financial openness is unlikely to deliver financial development. If anything, they argue that it is likely to result in greater financial repression and loan subsidies, so that industrial incumbents obtain sufficient cheap finance to face competition. Similarly, they also suggest that financial openness alone may allow the largest domestic firms to tap foreign funds—which they may not need—but will not allow small or potential domestic firms access to funds. The domestic financial sector may see its profits threatened since industrial incumbents have access to international finance and may therefore push for liberalising access. However, it will face opposition by industrial incumbents who will continue to oppose financial development in order to prevent competition. Thus, “…cross border capital flows alone are unlikely to convince both our interest groups to push for financial development.”( Rajan and Zingales 2003, p.22). Their analysis, therefore, suggests that the simultaneous opening of both trade and capital accounts holds the key to successful financial development. 2 This is clearly an important prediction of their hypothesis that lends itself to rigorous empirical analysis using modern econometric methods and data.

The results presented in this paper, which, by and large, are robust to a range of alternative measures, datasets and estimation methods, suggest that trade and financial openness are statistically significant determinants of banking sector development. Our findings suggest that the marginal effects of trade (financial) openness are negatively related to the degree of financial (trade) openness, indicating that relatively closed economies may benefit from opening up their trade and/or capital accounts. Although these economies can benefit most by opening both their trade and capital accounts, opening up one without the other could still deliver benefits in terms of banking development. Thus, our findings provide partial support to the Rajan and Zingales hypothesis, which stipulates that both types of openness are necessary for financial development to take place.