The relationship between finance and exports: case of European countries

Abstract

The relationship between finance and the volume of exports is a topical subject that has interested and continues to interest researchers and public authorities, the interest of this subject is due to the ambiguity of the results.  Some works have favored the role of finance in improving export performance, some authors have indicated the non-existence of a relationship between these two components and others have indicated the negative impact of an underdeveloped financial system on the volume of exports by mentioning that it does not allow the financing of small and medium-sized enterprises to integrate the international market.

Faced with these controversial results, this work aims to re-examine this relationship on a sample of thirty-three European countries characterized by developed financial systems based on the indicator of measurement monetarization of the economy (money supply/GDP %), using the gravity model that has emerged as a widely used approach to analyze and forecast economic variables, especially bilateral trade flows, this work will then measure the effect of financial variables on the exports of countries, The result of our study showed that financial indicators have a negative effect on the volume of exports, which suggests that the system must prepare the necessary funds for companies and mainly small and medium enterprises that will require financing to make their products more competitive and integrate the international market, which will therefore increase the volume of exports and participate in the economic growth of these countries.

Keywords: Finance, Exportation, negative effect, the gravity model

JEL Code: H11

Paper Type: Emprical research.