Export quality dynamics: multidimensional evidence of financial development

Abstract

This study examines the impact of financial development on export quality. Financial development is proxied by the overall financial development index, its two sub-indices (financial institutions index and financial markets index) and three dimensions of each sub-index. The study begins by examining the causality between financial development indicators and export quality. The influences of financial development indicators on export quality are then investigated. Econometric techniques are applied for 49 low- and lower-middle-income economies (LMEs), 31 upper-middle-income economies (UMEs) and 48 high-income economies (HIEs) over the period 2002–14, which was chosen on account of data availability. The predominant finding is significant bidirectional causality between financial development indicators, as well as their dimensions, and export quality. Notably, most financial development indicators and their dimensions are found to have significant positive effects on export quality for both HIEs and LMEs, while two dimensions of the financial institutions indicator have no significant impacts in the case of UMEs.