Impact of Trade Openness, Public Debt and Institutional Performance on Financial Development: Evidence from Asian Countries

Abstract

The article aims to explore the impact of trade openness, public debt and institutional performance on financial development in Asian countries. Results of the dynamic panel GMM estimation method reveal that institutional performance and trade openness are significantly and positively associated with financial development while the public debt stands as negatively correlated with the same in Asian countries. The interaction terms (interaction between trade openness and institutional performance & interaction between public debt and institutional performance) tend to have a positive and significant association with financial development. Moreover, having included the interaction term of public debt and institutional performance, the public debt turns out to be positively linked with financial development. The study recommends that policies on trade openness, taking the form of tariff reductions and trade barriers, efficient controls on public debt and improving institutional performance remain vital towards financial development in Asian countries.