Econometric Analysis of the Hidden Links between Trade Openness and Financial Openness

Abstract

This paper firstly uses the quantitative indicators to estimate the level of trade openness and financial openness in China, then use the error correction model, Granger and Geweke causality test methods, generalizes impulse response function to analyze the hidden links of trade openness and financial openness. The results show that there exists a long equilibrium and a mutual promotion relationship between financial openness and trade openness in China and there is a long-term and a bidirectional causality between financial openness and trade openness; In addition, the share of feedback reveals that more forceful causal relationship from trade openness to financial openness.