THE CAUSALITY AMONG FINANCIAL SECTOR DEVELOPMENT, TRADE OPENNESS AND ECONOMIC GROWTH: PANEL-VAR EVIDENCE FROM EMERGING MARKET AND DEVELOPING ECONOMIES

This study examines the causality among financial sector development, trade openness and economic growth in emerging market and developing economies. The Panel Vector Autoregressive approach in Abrigo and Love (2015) is applied 86 countries over the period of 1998-2016. The country sample is divided into two groups as low and lower-middle income countries, and upper-middle and high income countries. By doing so, it is investigated how the differentiation in income level affects the causality among variables. The findings suggest that there is causality from economic growth to trade openness and from trade openness to financial sector development in low and lower-middle income countries. Moreover, financial sector development is found as a key determinant of economic growth in this country group. The results also show that there is Granger causality running from economic growth to trade openness and from trade openness to financial sector development in upper-middle and high income countrie