Trade Openness and Finance: Effects of Foreign Trade with China on Latin American Financial Development

Using annual data from seventeen Latin American economies observed over the period 1982-2009 and a heterogeneous panel regression based on the pooled mean group approach of Pesaran et al. (1999), this study provides evidence to support the following findings: (1) the existing trade connection between China and Latin America has had a positive and significant effect on Latin American countries' financial development since the 1990s, (2) trade openness plays a positive role in Latin American economies' financial development, and (3) the economic development of Latin American countries has a positive influence on their financial development in the long run, but have a negative effect in the short run.