Symmetric Effect of Financial Market Development, Government Transparency and Trade openness on Macroeconomic Stability: Cross-country evidence

Abstract

This paper investigates the effect of financial market development, government transparency, and trade openness on macroeconomic stability by utilizing panel data from 75 countries from 2007 to 2017. The Quantile Regression method is applied for estimation, the findings reveal that financial market development is favorable for macroeconomic stability. The results also show that government transparency and trade openness is positively and significantly associated with macroeconomic stability. Gross Domestic Product (GDP) is utilized as a control variable which is also positive and significant with macroeconomic stability. Furthermore, for robustness, the central panel is divided into three sub-panel on the basis of country risk (low-risk, moderate-risk, and high-risk) and adopted the same statistical technique. The results show that the study's independent variables have a significant and positive association with macroeconomic stability at various quantiles. However, financial market development and government transparency are more important factors than trade openness. It is recommended that an optimal level of policies for financial development and government transparency should be designed and formulated for economic stability in the country. It is suggested that future research focus on financial openness for further study on macroeconomic stability.