The Effect of Financial Development and International Trade on Deregulation

Abstract

This paper provides robust evidence of financial development and international trade liberalization on deregulation in some developing economies. Specifically, it investigates the effect of financial development and international trade liberalization on deregulation in 45 African countries in a panel set between January 1, 1980, to December 31, 2017. It employed the system Generalized Method of Moments (GMM) panel data estimation to address potential endogeneity concerns. Demir and Dahi (2011) showed that system GMM can effectively deal with any endogeneity issue originating from unobserved country-specific effects, and bias. The study found a robust positive effect of financial development and international trade liberalization on deregulation. The key finding was that technological impact is observed when private credit is regressed on market capitalization on Gross Domestic Product (GDP). It found that both GDP and gross per capita negatively impact financial development, conceivably causing the selected African countries’ markets to be insulated.