Does financial integration drive export diversification? Evidence from a cross-country analysis

Purpose: The purpose of this paper is to examine the nexus between financial integration and export diversification. Design/methodology/approach: The authors consider 96 economies spanning over the period 1995-2014. To provide broader insights, the authors categorize 96 economies into developed, developing, high and low diversified panels. Both volume and equity-based measures of financial integration are used. The generalized method of moments (GMM) method is used to analyze the link between financial integration and export diversification. Findings: The results derived from GMM indicate that financial integration is a vital factor of export diversification. Further, the findings reveal similar conclusions for developed, developing, high and low diversified panels. Research limitations/implications: The outcome of this study suggests that promoting the financial integration of markets by lowering the restrictions on capital inflows helps countries to lower the risk and diversify their exports. Originality/value: Though there exists enormous literature on export diversification, the nexus between financial integration and export diversification is limited. The present study bridges this research gap.