Does Financial Development Lead to Trade Liberalization?

It has long been argued that trade restrictions can be motivated by insurance considerations in the absence of full risk diversification. Recent theoretical research suggests that markets for risk can alleviate resistance to reform and protectionist lobby group pressure. We empirically address the hypothesis that institutions <p> reducing risk can facilitate liberal trade policy. Our results reveal a robust positive relationship between <p> openness to trade and the development of domestic and international financial markets.