Financial depth and international trade: evidence from China

Abstract

There has been renewed interest in the link between financial development and trade amongst researchers. Financial development is a multifaceted concept that encompasses several dimensions; however, there is very limited empirical work on how these dimensions interact with international trade. This study offers insights into the link between financial depth (a dimension of financial development) and international trade utilising data from China’s trade flows with 145 trading partners between the years 2000 and 2016. Employing the FGLS estimation approach, this study concludes the following: (1) Financial depth significantly influences China’s international trade flows, with the direction of impact depending on the indicator of financial depth employed. (2) Remittances augment financial development in China and significantly influence international trade flows. (3) Banking crises in China’s trading partner economies have a significant negative impact on trade flows. (4) Strategic economic partnerships particularly trade agreements play a positive role in enhancing China’s trade flows.

Keywords:

• Financial depth
• international trade
• trade flows

Acknowledgements

The authors appreciate the valuable comments of anonymous reviewers.

Disclosure statement

No potential conflict of interest was reported by the authors.

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Additional information

Funding

We are also grateful for the financial support provided by the National Natural Science Foundation of China (No. 71774071, 71690241, 71810107001, 71834003), the Philosophy and Social Science Fund of Education Department of Jiangsu Province (2018SJA1069) and Young Academic Leader Project of Jiangsu University (5521380003).

Notes on contributors

Hua-ping Sun

Huaping Sun is a Ph.D in Economics, Associate Professor in Jiangsu University. His main research field is Global Value Chains.

Tadiwanashe Muganyi

Tadiwanashe Muganyi is a Ph.D Candidate in Shanghai University. His main research field is International Trade.