Volume 29, Issue 5, 2020
DOI: 10.24205/03276716.2020.1066
The Nexus Between International Trade, Financial Development and Economic Growth: The Case of South Korea
Abstract
International trade and financial sector including derivatives markets are two significant components in terms of macroeconomic factors. In this sense, the financial sector ensures a great variety of services to companies, public institutions and individuals which triggers economic growth. The main research area in the context of academic literature is: how International trade or financial development affects economic growth? The linkage among financial development and economic growth (GDP) has been addressed by many works in economic literature. In methodology part of this paper, the data of international trade, financial development and GDP are derived from worldbank’s official website as annual for South Korea. Economic growth variable is determined as GDP which is obtained from worldbank’s official website as annual for South Korea from 1977 to 2018. On the other hand, International trade data is acquired from same resource as the total of exports and imports of goods and services. Finally, financial development data is derived as domestic credit to private sector. According to co-integration test results of Table 3. there is a long run stable relationship among GDP, domestic credit to private sector and aggregate exports and imports of goods and services (international trade). The findings indicate that domestic credit to private sector has the strongest effect on economic growth (GDP) compared to the sum of exports and imports of goods and services in South Korea. Empirical results demonstrate that the South Korean government should try to contribute the financial development to construct a durable financial system and to trigger the Gross Domestic Product (GDP) will be beneficial to have sustainable economic development. In this context, removing all trade barriers, a well-developed logistics infrastructure and appropriate macroeconomic environment are definitely required in order to carry out the determined policies. The South Korean government should promote the flow and use of RMB throughout countries and support the private sector, local companies, by supplying incentives. Therefore, constructing a better state bank infrustructure and financial system collaboration of the government is so significant as well.
Keywords
International Trade, Financial Development, Economic Growth, CCR Model