Does Trade Openness Affect Bank Risk-Taking Behavior? Evidence from BRICS Countries

Mohammed Mizanur Rahman; Munni Begum; Badar Nadeem Ashraf; Md Abdul Kaium Masud

doi:10.3390/ECONOMIES8030075

Does Trade Openness Affect Bank Risk-Taking Behavior? Evidence from BRICS Countries

Mohammed Mizanur Rahman, Munni Begum, Badar Nadeem Ashraf, Md Abdul Kaium Masud

Research output: Contribution to journal › Article › peer-review

17 Citations (Scopus)

Abstract

In this paper, we examine the impact of trade openness on bank risk-taking behavior employing a panel dataset of 899 banks from the BRICS (i.e., Brazil, Russia, India, China, and South Africa) countries over the period 2000-2017. We find that higher trade openness lowers bank risk-taking. Our results are robust when we use alternative proxies of trade openness and bank risk-taking, estimate country-wise regressions, or use alternative estimation methods such as system Generalized Methods of Moments (GMM), fixed effects, pooled Ordinary Least Square (OLS), and Vector Error Correction Model (VECM) models. We also observe higher trade openness decreases bank risk-taking in both the short and long run. Moreover, banks in more open countries perform relatively better during the crisis period further signifying the diversification benefits of openness. Together, our findings imply the beneficial impact of trade openness for financial sector stability.

Original language	English
Article number	75
Pages (from-to)	75
Journal	Economies
Volume	8
Issue number	3
DOIs	https://doi.org/10.3390/ECONOMIES8030075 https://doi.org/10.3390/economies8030075
Publication status	Published - 14 Sept 2020
Externally published	Yes

Bibliographical note

Publisher Copyright:
© 2020 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (http://creativecommons.org/licenses/by/4.0/).

Keywords

Bank risk-taking
Financial crisis
Financial stability
System GMM
Trade openness
VECM

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title = "Does Trade Openness Affect Bank Risk-Taking Behavior? Evidence from BRICS Countries",

abstract = "In this paper, we examine the impact of trade openness on bank risk-taking behavior employing a panel dataset of 899 banks from the BRICS (i.e., Brazil, Russia, India, China, and South Africa) countries over the period 2000-2017. We find that higher trade openness lowers bank risk-taking. Our results are robust when we use alternative proxies of trade openness and bank risk-taking, estimate country-wise regressions, or use alternative estimation methods such as system Generalized Methods of Moments (GMM), fixed effects, pooled Ordinary Least Square (OLS), and Vector Error Correction Model (VECM) models. We also observe higher trade openness decreases bank risk-taking in both the short and long run. Moreover, banks in more open countries perform relatively better during the crisis period further signifying the diversification benefits of openness. Together, our findings imply the beneficial impact of trade openness for financial sector stability.",

keywords = "Bank risk-taking, Financial crisis, Financial stability, System GMM, Trade openness, VECM",

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AU - Rahman, Mohammed Mizanur

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AU - Ashraf, Badar Nadeem

AU - Abdul Kaium Masud, Md

N1 - Publisher Copyright: © 2020 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (http://creativecommons.org/licenses/by/4.0/).

PY - 2020/9/14

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N2 - In this paper, we examine the impact of trade openness on bank risk-taking behavior employing a panel dataset of 899 banks from the BRICS (i.e., Brazil, Russia, India, China, and South Africa) countries over the period 2000-2017. We find that higher trade openness lowers bank risk-taking. Our results are robust when we use alternative proxies of trade openness and bank risk-taking, estimate country-wise regressions, or use alternative estimation methods such as system Generalized Methods of Moments (GMM), fixed effects, pooled Ordinary Least Square (OLS), and Vector Error Correction Model (VECM) models. We also observe higher trade openness decreases bank risk-taking in both the short and long run. Moreover, banks in more open countries perform relatively better during the crisis period further signifying the diversification benefits of openness. Together, our findings imply the beneficial impact of trade openness for financial sector stability.

AB - In this paper, we examine the impact of trade openness on bank risk-taking behavior employing a panel dataset of 899 banks from the BRICS (i.e., Brazil, Russia, India, China, and South Africa) countries over the period 2000-2017. We find that higher trade openness lowers bank risk-taking. Our results are robust when we use alternative proxies of trade openness and bank risk-taking, estimate country-wise regressions, or use alternative estimation methods such as system Generalized Methods of Moments (GMM), fixed effects, pooled Ordinary Least Square (OLS), and Vector Error Correction Model (VECM) models. We also observe higher trade openness decreases bank risk-taking in both the short and long run. Moreover, banks in more open countries perform relatively better during the crisis period further signifying the diversification benefits of openness. Together, our findings imply the beneficial impact of trade openness for financial sector stability.

KW - Bank risk-taking

KW - Financial crisis

KW - Financial stability

KW - System GMM

KW - Trade openness

KW - VECM

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SP - 75

JO - Economies

JF - Economies

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M1 - 75

ER -

Does Trade Openness Affect Bank Risk-Taking Behavior? Evidence from BRICS Countries

Abstract

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Keywords

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