Impact of Financial and Trade Openness on Financial Development in Oil and Non-Oil Developing Countries using the Panel ARDL Approach (With Emphasis on Institutional Components)

Given the importance of financial development to achieve sustainable economic growth, the main objective of this study is to investigate the effect of economic openness (financial and trade openness) on financial development (with emphasis on institutional components) in two groups of oil and non-oil developing countries. In this regard, the Panel ARDL method has been used for the period 2000-2017. The estimated results indicate a positive and significant effect of financial openness on financial development in the oil developing countries and its negative and significant impact on financial development of the non-oil developing countries in the long run. Also, the results show that trade openness has a significant and positive effect on financial development in non-oil developing countries in the long run. While the relationship of trade openness with financial development is statistically meaningless in the oil developing countries. Furthermore, most of the institutional variables in the developing countries have played a positive role in promoting the financial development index in the short-term and long-term. Nevertheless, the effect of these variables on financial development in the non-oil developing countries is very limited in the short-run while it is negative in the long-run.