INTRODUCTION 1
It is now widely accepted that trade and financial openness constitute potentially important mechanisms for financial development (Rajan and Zingales,
Numerous studies, including those by Baltagi et al (2003, 2007, 2009), Chinn and Ito (2002, 2006), and Law and Demetriades (2006), indicate that various factors can significantly influence economic growth, particularly in developing countries (Caporale et al., 2014; Estrada et al., 2010, 2015; Menyah et al., 2014) Additionally, trade openness emerges as a critical determinant of environmental quality, highlighting its importance in sustainable development.
(Antweiler et al , 2001; Cole and Elliott, 2003; Managi et al , 2009; Atici, 2009, 2012; Baek et al , 2009; Nasir and Rehman, 2011; Shahbaz et al , 2016; Mutascu, 2018)
Despite extensive research on financial development, economic growth, and environmental quality, most studies primarily rely on panel data methodologies grounded in traditional statistical inference (Gries et al., 2009; Chinn & Ito, 2002; Cecchetti & Kharroubi, 2012).
Numerous studies, including those by Estrada et al (2015), Zhang et al (2012), and Ergungor (2008), highlight that standard statistical methods often overlook model uncertainty This oversight can result in overly confident inferences, as discussed by Adu et al (2013), Frankel & Rose (2005), Antweiler et al (2001), Cole & Elliott (2003), and Le et al (2016).
The challenges in development economics arise from the "all-or-nothing" constraint and omitted variable bias, which lead to poor generalization of findings (Raftery et al., 1993; 1997; 2005; Hoeting et al., 1999; Chipman et al., 2001; Fragoso et al., 2018; Hinne et al., 2020) The literature on financial development, economic growth, and environmental quality has seen a rise in competitive theories and empirical studies, highlighting the complexities of these relationships To address model uncertainty among numerous candidate regressors, Bayesian model averaging (BMA) emerges as a valuable methodology This thesis leverages BMA, as advocated by key researchers like Raftery and Hoeting, to enhance the understanding of these dynamics Additionally, the inconclusive nature of previous research underscores the ongoing debates within the fields of financial development, economic growth, and environmental quality.
The impacts of openness on financial development
Rajan and Zingales (2003) propose the simultaneous openness hypothesis, asserting that genuine financial development requires the concurrent liberalization of both trade and capital accounts They argue that interest groups often resist financial development due to increased competition that threatens their profits By simultaneously opening trade and capital flows, the power of these incumbents is diminished, fostering financial development Additionally, the new opportunities created by trade and financial openness can generate profits that outweigh the adverse effects of competition In contrast, McKinnon (1991) contends that trade liberalization should occur before financial liberalization to effectively promote financial development, particularly in developing nations.
The thesis is significantly motivated by the empirical work of Baltagi et al (2009) and earlier studies, including those by Beck (2002), Chinn and Ito (2002), and Rajan and Zingales (2003) However, the existing empirical research on the relationship between openness and financial development presents mixed results, lacking a unified consensus across both developed and developing economies.
Raddatz, 2005; Law and Demetriades, 2006; Baltagi et al , 2007, 2009; Wolde-
Rufael, 2009, David et al , 2014; Karimu and Marbuah, 2017); negative or mixed
(Svaleryd and Vlachos, 2002; Aizenman and Noy, 2003; Aizenman, 2004; Do and
Levchenko, 2004, 2007; Ito, 2006; Chinn and Ito, 2006; Svaleryd and Vlachos, 2005;
The thesis examines the impact of economic factors in developing countries, a subject that has been underexplored in existing literature While studies by Kim et al (2010a, 2010b) and Trabelsi and Cherif (2017) indicate significant effects, other research, including Wolde-Rufael (2009), Gries et al (2009), and Hauner et al (2013), suggests null outcomes This highlights the need for further investigation into the dynamics affecting these economies.
Over the past two decades, trade and financial liberalization have significantly influenced developing countries, particularly following the structural adjustment policies imposed by international organizations like the IMF, World Bank, and WTO in the 1980s These free-market programs focused on reducing trade barriers, deregulation, and privatization, while financial liberalization involved removing restrictions such as interest rate ceilings and high reserve requirements Notably, financial development, measured by the ratio of private credit to GDP, has shown a steady increase in developing countries, contrasting with stagnation in developed economies since 2009 However, the trends in trade and financial openness in developing nations have become increasingly unpredictable This thesis aims to explore the critical roles of trade and financial openness in the financial development process of developing countries, emphasizing the importance of understanding the underlying causes of financial development to foster banking sector activities that can drive economic growth.
Figure 1 1 Financial development in developing countries over the period
Source: Global Financial Development Database (GFDD) and author’s calculations
Figure 1 2 Openness in developing countries over the period 2003-2017
Developed countries Developing countries Developed countries Developing countries Source: World Development Indicators (WDI), Annual report on Exchange Arrangements and Exchange Restrictions (AREAER),
Chinn and Ito (2019) and author’s calculations
This thesis enhances the empirical literature on the relationship between openness and financial development by employing a Bayesian Model Averaging (BMA) approach, as recommended by key studies including Raftery (1993), Raftery et al (2005), and Raftery et al (1997).
This thesis addresses a gap in the econometrics literature by examining the impacts of openness on financial development, an approach previously unexplored It utilizes the ratio of private credit to GDP as a key indicator of financial development, which is deemed suitable for developing countries Additionally, the study highlights the lack of empirical research on the effects of openness on financial development, particularly regarding the legal origins variable that influences the protection of corporate shareholders and creditors The thesis also explores various interactions between trade openness and factors such as financial openness, institutional quality, and real GDP per capita to identify the channels through which trade liberalization impacts financial development Regional dummy variables are incorporated as control variables to facilitate comparisons of financial development across different regions Finally, the analysis is based on data from 2003 to 2017, ensuring an optimal sample size of developing countries to investigate the relationship between openness and financial development.
The impact of financial development on economic growth
The interplay between financial development and economic growth has been a pivotal focus in development economics research for several decades, highlighting its significance in understanding economic progress (Andersen & Tarp, 2003; Chinn & Ito, 2002; Estrada et al., 2015; King & ).
Empirical studies indicate that financial systems significantly impact savings and investment decisions, thereby fostering economic growth in both developed and developing nations Levine (2005) identifies five key functions of financial systems that contribute to this process: they provide information on potential investments, monitor investments and corporate governance, facilitate risk management and diversification, mobilize savings, and ease the exchange of goods and services The efficiency of a financial system is measured by its ability to perform these functions effectively, while financial development signifies an enhancement in this efficiency.
Figure 1 3 Economic growth in developing countries over the period 2003-2017
Source: World Development Indicators (WDI) and author’s calculations
In the past twenty years, developing economies have undergone significant financial sector reforms, driven by the removal of government restrictions on interest rates, reduced reserve requirements, and the easing of credit allocation controls These changes aim to stimulate economic growth and enhance the efficiency of financial systems (McKinnon, 1973; Shaw).
Between 2003 and 2017, developing economies experienced fluctuating economic growth, with a notable surge from 2003 to 2007 due to increased financial development However, this growth was abruptly interrupted by a decline from 2007 to 2009, culminating in a significant reversal in 2009, followed by stagnation from 2010 to 2017 This thesis seeks to present new insights into how financial development has influenced economic growth in developing countries during this period.
This investigation enhances the existing literature by addressing six key areas Firstly, it explores the under-researched relationship between financial development, economic growth, and openness factors in developing countries Secondly, it utilizes Bayesian statistics, specifically Bayesian model averaging (BMA), to analyze the impact of financial development on economic growth, filling a gap left by previous studies that primarily relied on traditional panel data methods Thirdly, the study challenges the conventional use of the private credit to GDP ratio as the sole indicator of financial development, which has been deemed suitable for developing nations Fourthly, it highlights the lack of empirical research on the role of legal origins in protecting corporate shareholders and creditors within developing economies Fifthly, the thesis examines various interactions between trade openness, financial openness, and institutional quality to understand how trade liberalization influences economic growth Lastly, it incorporates regional dummy variables in the regression analysis to compare economic growth levels across different regions.
The impact of trade openness on environmental quality
LITERATURE REVIEW 16
2 1 1 Impacts of openness on financial development: A theoretical review
Firstly, regarding financial openness, several theoretical and empirical arguments are in favor of financial openness inspired by the seminal contribution of McKinnon
(1973) and Shaw (1973) (hereinafter called McKinnon-Shaw hypothesis) The
The McKinnon–Shaw hypothesis argues against financial repression policies, such as interest rate ceilings, administrative credit allocation, and high reserve requirements, which were prevalent in less developed countries during the 1960s and 1970s.
Figure 2 1 The McKinnon–Shaw model r 3 r 2 r 1 r o
The McKinnon-Shaw hypothesis posits a positive relationship between savings and real interest rates across various economic growth rates In less developed countries, this theory suggests that the real interest rate is often maintained below its equilibrium due to administratively set nominal interest rates Additionally, financial repression, characterized by a fixed interest rate, can lead to an increase in savings while simultaneously restricting actual investment levels.
When interest rate ceilings are imposed on loans, compliance with these limits often leads to non-price rationing of loanable funds This situation results in two significant consequences: first, both savings and investment levels remain low, as savings are crucial for determining the real supply of credit; second, the allocation of investable funds becomes inefficient due to reliance on non-price criteria Ultimately, these factors hinder the growth and development of the financial system and the overall economy.
The relaxation of financial repression, in the context of a higher institutional nominal interest rate, positively impacts savings by increasing the real interest rate This leads to the elimination of several low-yield investments, thereby enhancing overall investment efficiency Additionally, economic growth is bolstered as the savings function shifts, resulting in a higher actual investment rate due to increased savings.
The McKinnon–Shaw hypothesis advocates for the removal of interest rate ceilings in repressed financial systems during financial liberalization This policy is expected to foster economic growth by enhancing savings and the availability of loanable funds, while also improving the allocation of these resources The model suggests that a balanced equilibrium will be achieved when the real interest rate aligns with r2, and savings and investment reach I2, as illustrated in Figure 2 This scenario promotes transparency in the market for loanable funds through the price mechanism.
Beck (2002) presents a theoretical model illustrating the relationship between trade openness and financial development, emphasizing that a well-developed financial system enhances the capacity for large-scale, high-return enterprises Increased access to external finance enables producers to leverage scale economies, leading to improved production and trade balance in economies with advanced financial structures (Helpman, 1981; Khan, 2001) In a closed economy, Beck indicates that the proportion of entrepreneurs in manufacturing diminishes as search costs for financial intermediaries rise In contrast, the food industry experiences lower returns for entrepreneurs due to these higher search costs, while manufacturing entrepreneurs benefit from greater external financing and scale efficiencies, resulting in higher earnings.
Food producers benefit more from a higher debt-to-capital ratio than from increased capital stock Consequently, financial growth that reduces search costs can incentivize production in a larger manufacturing sector This shift is essential for maintaining equilibrium in an open economy.
According to Beck (2002), when domestic financial intermediaries encounter higher search costs compared to their global counterparts, the economy tends to export food while importing manufactured goods This observation aligns with the Ricardian hypothesis of international trade, which suggests that a robust financial system enhances technological capabilities in manufacturing, ultimately leading to a comparative advantage in this sector.
In addition to the McKinnon-Shaw hypothesis and Beck's theoretical model (2002) concerning financial development and international trade, two primary channels illustrate how openness influences financial development These channels include an increase in the demand for financial services and the expansion of market size, as highlighted by Svaleryd.
Increased trade openness boosts demand for innovative financial services, such as trade finance instruments and risk hedging, as highlighted by Vlachos (2002) Additionally, capital account openness can lower capital costs and enhance liquidity, potentially fostering greater financial development Levine (2001) found that removing restrictions on international portfolio flows can further improve stock market liquidity.
Fourthly, another important channel through which openness may influence financial development is via political economy factors According to Rajan and Zingales
In 2003, it was suggested that interest groups, particularly incumbents, oppose financial development due to its potential to increase competition and diminish their economic advantages These groups contend that the simultaneous opening of trade and capital flows—referred to as the simultaneous openness hypothesis—can weaken their influence and promote financial growth Additionally, while trade and financial openness may introduce new competitive pressures, they also offer opportunities for profits that could outweigh the adverse effects of increased competition.
Numerous studies indicate a positive correlation between openness, institutions, and financial development Kose et al (2009) demonstrate that capital account liberalization can enhance macroeconomic policy discipline by increasing the advantages of sound policies and the risks of poor ones Their research shows that while financial openness correlates positively with monetary policy outcomes, there is no evidence that trade and financial openness effectively discipline fiscal policy Mishkin (2009) points out that foreign capital inflows promote technology transfer, prompting domestic banks to elevate their lending standards and adopt international best practices However, openness can also lead to negative consequences for financial development, such as heightened volatility and increased risk-taking by domestic banks (Kose et al., 2009; Mishkin, 2009).
According to Stiglitz (2000), the success or failure of free trade and financial liberalization hinges on management strategies When national governments tailor approaches to their unique contexts, as seen in East Asian nations like South Korea and Taiwan, success is more likely In contrast, management by international institutions such as the IMF and World Bank often leads to failure Stiglitz advocates for "global governance without global government" to improve current globalization processes He emphasizes that hasty financial and capital market liberalization, lacking a robust regulatory framework, has been detrimental Notably, India and China, which maintained strong capital flow controls, have thrived despite global economic challenges.
A theoretical framework illustrating the impacts of openness on financial development is presented in Figure 2 2
Figure 2 2 A theoretical approach to openness and financial development
- Abolishing policies of financial repression (e g interest rate ceilings, administrative credit allocation, high reserve requirements, and other government-induced distortions)
- Enhancing transparency of financial market via a price mechanism
- Encouraging domestic banks to adopt of international standards
- Creating demand for financial services (e g , trade finance instruments, hedging of risks)
- Decreasing in search costs for financial intermediaries
How it is managed (Institutions)
2 1 2 Impacts of openness on financial development: An empirical review
The relationship between openness and financial development has garnered significant interest, yet empirical evidence shows varying results in both developed and developing economies.
Recent studies have explored the relationship between financial development and trade openness, with Beck (2002) examining this connection specifically in the context of manufactured goods Utilizing ordinary least squares and instrumental variables estimations, Beck analyzes how the economy-wide level of external finance influences the trade balance in manufactured goods, assessing the empirical validity of this model with panel data from 65 countries spanning 1966 to 1995 The findings suggest that countries with more developed financial systems experience a higher export share and improved trade balance in manufactured goods Similarly, Svaleryd and Vlachos (2002) investigate this relationship across 80 countries from 1960 onward, further contributing to the understanding of how financial development impacts trade openness.
Economists assert that financial systems significantly impact savings and investment choices, ultimately driving economic growth (Levine, 2004; Zhuang et al., 2009) Levine (2005) identifies five essential functions of financial systems in emerging markets: they produce pre-investment information to allocate capital, monitor investments and enforce corporate governance, facilitate risk trading and management, mobilize and pool savings, and ease the exchange of goods and services The efficiency of a financial system is determined by its ability to perform these functions effectively, while financial development signifies an enhancement in this efficiency.
Financial systems generate crucial information about potential investments and allocate capital effectively, mitigating the high costs individual savers face when evaluating firms and market conditions By reducing these information costs, financial institutions enhance resource allocation and drive economic growth through specialization and economies of scale Improved access to information also empowers entrepreneurs to identify optimal production technologies and initiate innovative goods and processes Additionally, stock markets play a significant role in stimulating information generation about firms, as larger and more liquid markets incentivize agents to invest in researching enterprises, ultimately facilitating informed investment decisions.
Financial systems play a crucial role in corporate governance by enabling shareholders and creditors to oversee how firms utilize capital, thereby influencing managers to enhance corporate value As highlighted by Levine (2004), effective corporate governance mechanisms are essential for resource allocation and utilization, addressing the “agency problem” that arises from the separation of equity and debt holders from management (Coase, 1937; Meckling & Jensen, 1976; Myers & Majluf) This dynamic is vital for promoting economic growth.
1984) Therefore, good corporate governance supports to improve firm efficiency in allocating and utilising resources, as well as encouraging savers to be more willing to finance for innovation and production
Financial instruments, intermediaries, and markets play a crucial role in enhancing trading activities, hedging, and risk pooling, thereby mitigating risks associated with various sectors and projects The effectiveness of financial systems in providing risk diversification services is vital for long-term economic growth, as it fosters savings and optimizes resource allocation By enabling cross-sectional risk diversification, financial systems can stimulate technological innovation, as they allow for the management of diverse portfolios of creative projects, reducing risk and encouraging investment in growth-oriented activities Additionally, financial systems facilitate inter-temporal risk sharing and smoothing across generations, promote liquidity, mitigate liquidity risks, and ultimately drive long-term investment and economic growth.
Financial systems play a crucial role in pooling and mobilizing savings from various individuals for investment purposes This process involves overcoming transaction costs and addressing informational asymmetries, making it a complex yet essential function Effective financial systems enhance economic development by increasing savings, leveraging economies of scale, and addressing investment indivisibilities By aggregating resources from diverse savers and investing in a diversified portfolio of high-return projects, these systems facilitate the reallocation of investments, ultimately contributing to economic growth.
2004, p 880 as cited in Acemoglu and Zilibotti, 1997)
Financial institutions, instruments, and markets play a crucial role in promoting specialization, technological innovation, and economic growth by lowering transaction costs In contrast, barter exchange is costly due to the extensive knowledge required to assess the characteristics of various products and services By facilitating the trading of goods and services, financial systems enhance specialization and drive economic progress Additionally, financial innovations are instrumental in decreasing both transaction and information costs, thereby fostering a more efficient economic environment.
Increased specialization drives a higher volume of transactions, which in turn fosters even greater specialization This dynamic illustrates how markets facilitate exchange and enhance productivity Additionally, the resulting productivity gains can positively influence the development of financial markets, suggesting that economic growth can catalyze the advancement of the financial sector.
Based on Levine (2004), Figure 2 4 shows a theoretical framework for the impact of financial development on economic growth
Figure 2 4 A theoretical approach to financial development and economic growth
- Producing information and allocating capital
- Monitoring firms and exerting corporate governance
2 2 2 Impact of financial development on economic growth: An empirical
Numerous studies have investigated the relationship between financial development and economic growth using various econometric methods, including cross-sectional, time-series, and panel data analyses (Beck et al., 2005; Beck & Levine, 2004; King & Levine, 1993) Despite these efforts, the results remain inconclusive A key reason for this inconsistency is the complex and multidimensional nature of financial development, which significantly influences its effect on economic growth.
Research indicates that countries with well-developed financial markets experience greater economic growth, supporting the idea that increased financial resources contribute to economic advancement A key study by King and Levine (1993b) analyzed data from 77 countries between 1960 and 1989, finding a statistically significant positive correlation between financial depth and economic growth This highlights the importance of financial development in both developed and developing nations.
Zervos (1998) conducted a two-stage least squares analysis on 47 countries from 1976 to 1993, finding a positive correlation between banking development, stock market liquidity, and economic growth Similarly, Levine et al (2000) utilized generalized method of moments (GMM) estimators on a dataset of 71 countries from 1960 to 1995, revealing a positive relationship between financial intermediation development and economic growth Calderón and Liu (2003) examined the causality between financial development and economic growth using the Geweke decomposition test on panel data from 109 countries (1960–1994), concluding that financial development fosters real GDP per capita growth Additionally, Beck and Levine (2004) applied GMM estimators to data from 40 countries (1976–1998) to reaffirm that both stock market and banking development positively impact economic growth.
Between 1990 and 2008, Estrada et al (2010) utilized the least squares dummy variable model to explore the connection between financial development and economic growth in Asian developing countries Their research revealed that advancements in banking, stock markets, and overall financial systems have a significantly positive impact on economic growth in both developed and developing nations, as supported by the findings of Bangake and Eggoh.
A series of studies have explored the relationship between financial development and economic growth across various countries and time periods Research from 2011 utilized cointegration tests on 71 developed and developing nations from 1960 to 2004, revealing a long-term equilibrium that supports bidirectional causality between financial development and GDP per capita Bittencourt (2012) focused on four Latin American countries between 1980 and 2007, finding that financial development empowers entrepreneurs to invest in productive activities, thereby enhancing economic growth, in line with Schumpeterian theory Similarly, Caporale et al (2014) examined 10 new EU member states from 1994 to 2007, concluding that while stock and credit markets have limited effects on growth due to insufficient financial depth, a more efficient banking sector could foster economic expansion Their Granger causality test indicated that causality flows from financial development to economic growth, but not the reverse.
A meta-analysis conducted by Valickova et al (2015) reviewed 1,334 estimates from 67 studies to investigate the link between financial development and economic growth The results reveal that stock markets significantly enhance economic growth at a quicker pace compared to other financial intermediaries.
The second division of studies emphasizes the relationship between financial development and economic growth in developing economies For instance, Al-Yousif (2002) employed a Granger causality test within an error correction framework to analyze this relationship across 30 developing countries from 1977 to 1999 The findings indicate a bidirectional causality between financial development and economic growth, although these results vary by country and depend on the financial development proxies utilized Additionally, Kargbo and Adamu applied the autoregressive distributed lag (ARDL) approach to further explore this dynamic.
Research has shown a significant relationship between financial development and economic growth across various countries and time periods A study conducted in Sierra Leone from 1970 to 2008 found that financial development promotes economic growth primarily through investment channels Similarly, Zhang et al (2012) analyzed data from 286 Chinese cities between 2001 and 2006, revealing a positive correlation between financial development and economic growth using system GMM estimators In Kenya, Uddin et al (2013) applied the Cobb–Douglas production function and the autoregressive distributed lag (ARDL) bounds test from 1971 to 2011, concluding that financial sector development positively impacts economic growth Furthermore, Adu et al (2013) explored the long-term effects of financial development in Ghana from 1961 to 2010 using the ARDL model, indicating that the impact of financial development on economic growth varies depending on the specific indicators used to measure financial development.
Secondly, several other studies purport the existence of a threshold impact of financial development on economic growth For instance, Cecchetti and Kharroubi
Research indicates an inverted U-shaped relationship between the size of the financial sector and productivity growth, suggesting that excessive financial development can hinder real economic growth by competing for limited resources Studies by Arcand et al (2015) reveal that in high-income countries, credit to the private sector exceeding 100% of GDP may negatively impact growth, supporting the "vanishing effect" hypothesis of financial development Similarly, Rioja and Valev (2004a) highlight a threshold effect, where financial development positively influences economic growth only after reaching a certain level, being most significant in economies with intermediate financial development Conversely, Shen and Lee (2006) also identify an inverse U-shaped link, while Law and Singh (2014) employ a dynamic panel threshold technique to analyze the finance-growth relationship across 87 countries, confirming the existence of a finance threshold in this nexus.
Research shows that the relationship between financial development and economic growth varies across different income levels Specifically, Rioja and Valev (2004b) found that low-income economies exhibit an insignificant connection between financial development and economic growth In contrast, a significant positive relationship exists in middle-income economies, while this connection is only weakly significant in high-income economies.
Research by De Gregorio and Guidotti (1995) and Huang and Lin (2009) indicates that the positive impact of financial development on economic growth is significantly weaker in high-income countries compared to low- and middle-income nations This highlights a contradiction regarding the relationship between financial development and economic growth across different income levels Estrada et al (2015), utilizing the Arellano–Bond GMM approach, analyzed data from 108 countries, including 20 developing Asian economies, from 1977 to 2011 Their findings reveal that financial system development plays a crucial role in promoting economic growth, with a notably stronger effect observed in developing countries than in advanced economies.
Some studies challenge the link between financial development and economic growth Lucas (1988) emphasized that the significance of financial matters is often overstated in discussions Research by Kar et al (2011) on 15 Middle Eastern and North African countries from 1980 to 2007, utilizing Kónya's (2006) causality testing methods, found no bidirectional causality between financial development and economic growth across various financial metrics Similarly, Menyah et al (2014) examined data from 21 African countries between 1965 and 2008 using a panel bootstrapped Granger causality approach and concluded that neither financial development nor trade liberalization significantly contributes to economic growth, with no evidence of causality between financial development and real GDP per capita.
Based on this empirical analysis of the literature, the thesis finds several research gaps regarding the impact of financial development on economic growth as the following:
Numerous studies have investigated the impact of financial development on economic growth, predominantly employing traditional or frequentist statistical techniques for panel data analysis Common methods include ordinary least squares, generalized methods of moments, and dynamic panel data estimators Notable research in this area has been conducted by Shen and Lee (2006b), Cecchetti and Kharroubi (2012), and others, utilizing approaches such as two-stage and three-stage least squares, as well as autoregressive distributed lag models.
Despite previous studies (Adamu, 2009; Uddin et al., 2013; Adu et al., 2013) largely overlooking model uncertainty, there remains a significant lack of empirical research addressing this issue in economic growth, particularly within developing countries To address this gap, the thesis employs a Bayesian Model Averaging (BMA) technique, as recommended by key studies including Raftery (1993) and Raftery et al.
(2005), Raftery et al (1997), Hoeting et al (1999), etc to consider model uncertainty for this class of models in the next content
Numerous studies have explored the relationship between financial development and economic growth, as illustrated in Table 2 (Appendix 2) However, the connection between these factors in developing countries, particularly considering trade and financial openness, remains under-researched This thesis aims to address this gap by examining the influence of financial development and openness on economic growth.