Title: On the two way feedback between financial and trade openness
Description: "This paper studies the two-way feedback between de-facto financial and trade openness.  We first show that de-facto financial openness (measured by the sum of gross private capital inflows and outflows as percent of GDP) depends positively on lagged trade openness, controlling for macroeconomic and political economy factors.  Next, we confirm that de-facto trade openness depends positively on lagged financial openness, using similar controls.  Having empirically established (Granger) causality, we investigate the relative magnitudes of these causality structures using the decomposition test developed in Geweke (1982).  Most of the linear feedback between trade and financial openness (87%) can be accounted for by Granger-causality from financial openness to trade openness (53%) and from trade to financial openness (34%).  Simultaneous correlation between the two series accounts for only 13% of the total linear feedback between the two series"--National Bureau of Economic Research web site.
Subjects: Capital movements, Econometric models, Free trade