A Study On The Effects Of Trade Openness On Financial Development

In the context of economic globalization, trade and finance, the two independent factors in themodern economy, have got mutual penetration and mutual restraint. Now they have become thebackbone of modern economic growth. Therefore, a number of scholars have been focusing on theintrinsic link between trade and finance, instead of observing their effects on economic growth.Existed researches have mostly been based on data from developed countries, and regarded thefinancial development as the core of the whole economic activity. It may have a positive impact onthe scale and structure of trade openness. As a result, financial deepening is suggested as animportant mean to promote foreign trade and enhance international competitiveness. However, fordeveloping countries in which financial development has mostly lagged comparing to tradeliberalization, it is still debatable whether to implement a “financial first” strategy based on such aconclusion. Based on China’s economic situation, taking a contrary view of research, extending tothe regional perspective, this paper studies the impacts of trade openness on financial developmentin the Yangtze River Delta.The full context of this thesis is below: Chapter1is an introduction, briefly stating thebackground and significance. It also gives the main idea, methodologies, the framework andinnovations of this paper. Chapter2is the theoretical part. First it defines the basic concepts oftrade openness and financial development. Then it summarizes researches on financialdevelopment and international trade both in China and abroad. On the basis, it analyzes the impactmechanism of trade openness on financial development from risk diversification, interest groupstheory and selective credit these three perspectives. Chapter3is the data description of tradeopenness and financial development in the Yangtze River Delta. It employs statistical analysis,charts and other means to analyze the overall trend. Chapter4and5constitute the empirical part ofthe paper. Chapter4analyzes the overall relationship of trade openness and financial developmentin the Yangtze River Delta based on the time series. Chapter5gives a deeper analysis of thedynamic impacts of trade openness on financial development at the municipal level, based on thepanel data of16cities in the Yangtze River Delta from1997-2008. Chapter6is the paper’sconclusions and policy recommendations. Based on the preceding theoretical and empiricalanalysis, it summarizes the whole research and gives a general conclusion. Furthermore, it also proposes targeted policy recommendations on how to promote foreign trade of the Yangtze RiverDelta.