Investigating the Relationship between Financial Development, Trade Openness and Economic Growth in Argentina: A Multivariate Causality Framework.

Abstract

This study explored the interrelationships between financial development, economic growth and trade openness in Argentina using Vector Error Correction Model (VECM) with annual time series data (1994 to 2014). The contradictions in literature on the subject matter shows that the relationship between financial development, trade openness and economic growth is still an unsettled matter. Moreover, such a trivariate causality study on the three variables by empirical researchers has up to now eluded Argentina to the author’s best knowledge. The study observed a positive and significant uni-directional causality running from financial development to economic growth and from trade openness to financial development in the long run. The existence of a positive but weak uni-directional causality running from financial development to trade openness, trade openness to economic growth and from economic growth to trade openness in the long run was also detected. Results also showed a causality relationship running from financial development to economic growth, from trade openness to economic growth and feedback effects between trade openness and financial development in the short run in Argentina. The study therefore encourages the Argentinean policymakers to accelerate the implementation of financial development and trade openness enhancement policies in order to achieve sustainable growth.