Back to Search
Start Over
Financial Development, Trade Openness and Economic Growth: A Trilateral Analysis of Bahrain
- Source :
- International Journal of Economics and Finance. 7
- Publication Year :
- 2014
- Publisher :
- Canadian Center of Science and Education, 2014.
-
Abstract
- This study investigates the relationship between trade openness, financial development and economic growth for the Kingdom of Bahrain. Time series data are utilized form 1980 till 2012. The vector error correction model (VECM) in combination with innovation of accounting (variance decomposition and impulse response function) analysis are employed to explore the causal relationship between the variables. The stationarity properties of the data and the order of integration are tested using both the Augmented Dickey-Fuller (ADF) test and the Phillips-Perron (PP) test. All variables are found to be cointegrated indicating the existence of long-run relationship. The empirical findings show that trade openness and financial development have causal impact on economic growth. Conversely, growth is found to have no causal impact on trade and financial development, implying support for “trade-led growth” and “finance-led growth” hypotheses. Furthermore, the results show a short-run causality from financial development to trade openness. The findings suggest that trade openness and financial development are important elements in determining economic growth in Bahrain. Therefore, Bahrain should continue to patronize the development of its financial sector and to allow more trade openness in order to achieve a high and sustainable economic growth.
Details
- ISSN :
- 19169728 and 1916971X
- Volume :
- 7
- Database :
- OpenAIRE
- Journal :
- International Journal of Economics and Finance
- Accession number :
- edsair.doi...........b54165418ac467171ad93f60428ae73c