Financial Development Promotes International Trade

Nowadays, Finance and international trade have more and more become the core and engine of modern economy. The studies on the two topics by the domestic and foreign scholars are never stopped. Before, the study angle of the scholars is mostly from the relationship between financial development and economic growth or the relationship between trade and economic growth. From 1980s, the scholars were extending their perspectives to the internal link between financial development and trade. For a long time, the financial development and trade is always mutual affecting. Because the level of financial development is different from developed countries and developing countries, the relationship between financial development and trade in the above-mentioned two kinds of countries is also different. This dissertation is attempted to study the different mutual relationship between financial development and trade in developed countries and developing countries from both theoretical and empirical perspective, reveal the general mechanism of how financial development promotes trade, and discuss the case in China.This dissertation consists of 6 chapters.Chapter 1 is the Introduction and introduces the background and significance of topic, the definition of major concepts, research contents and chapters arrangement.Chapter 2 reviews the literatures related to financial development and international trade.Chapter 3 reviews the circumstance of financial development and trade at different income level of the world.Chapter 4 carries out a multi-angle analysis of theoretical mechanism of how financial development promotes the trade. This chapter proposed the view that financial development promotes the trade by four mechanisms, namely comparative advantage, economic of scale, diversification of risk and financial institutions.Chapter 5 discusses the granger causality respectively between the size of international trade, financial size and financial efficiency, and between international trade structure, financial size and financial efficiency based on the empirical testing by utilizing the related indicators of financial development and trade for about 30 years according to the review of the circumstance of financial development and trade since China's opening-up reform.Chapter 6 based on the empirical test results, considering China's actual conditions, raises the view that China should adhere to the strategy of "Finance Priority" as the developing country to insure the sustainable development.On the basis of previous researches, this dissertation mainly is making effort to reach the following 3 aspects of innovations:1. The angle for study. This paper studies international trade issues from the angle of finance with the breakthrough of the canonical form of using general international trade theory to analyze the international trade issues. Thus the angle for study is a kind of innovation.2. Theory frame. After deeply and detailed studies on the theories about financial development and trade, this paper concludes that the financial development promotes the international trade by four mechanisms, namely comparative advantage, economic scale, diversification of risk and financial institutions, and systematically explains their theoretical models and function path, and establishes a systematically theory frame of how financial development promotes trade.3. Research approach. The results of previous empirical studies on financial development and international trade of China are not steady due to lack of the suitability of the indexes chosen. In this paper, the author choose a set of related indexes of financial development and trade of China about 30 years since China's opening-up reform, and examine respectively how the different aspects of finance affect the trade size and structure. In empirical approach, this dissertation adopts the Co-integration,impulse response function,Variance decomposition and Granger causality test, and establishes the Error correction model to investigate the relationship between financial development and trade of China. Choosing the multiple empirical approaches is aimed to endeavor that the empirical results are comprehensive and accurate. This is another exploration and attempt.