Financial Development and International Trade in Manufactures: An Evaluation of the Relation in Some Selected Asian Countries

Michel Cyrille Samba, Yu Yan

Abstract


This paper analyzes the relationship between the level of financial development of a country and its comparative advantage in international trade. In fact the link between the two notions seems to perform in a two-side direction: A number of researchers have stressed the key role a country’s financial development is likely to play in its specialization in international trade, thus leading to a comparative advantage in the financially intensive goods, alongside capital and human resources. At the same time, it is argued that countries with comparative advantage in financially intensive goods experience a higher demand for external finance, and therefore financial development. In this paper, we aim to check the existence and the sense of the relation between the two variables within East Asian countries. A time-series approach using the VAR Model has been used to provide long run relationships between financial development and international trade in manufactured goods. Our main result suggests that for most of the countries considered, international trade in manufactured goods enhances financial development.


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International Journal of Business and Management   ISSN 1833-3850 (Print)   ISSN 1833-8119 (Online)

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