Financial Openness and Economic Growth --- An Empirical Analysis Based on Panel Threshold Model

This study analyzes whether there exists asymmetric relationship between financial openness and economic growth for a panel of 55 countries and areas during the ten-year period 1996 to 2006. Setting World Bank's Governance Indicators (GI) which measures economic and political environment of countries as threshold variable, the advanced panel threshold model in Hansen (1999) is performed. The result reveals that there exists one threshold effect between financial openness and economic growth and the estimated threshold value is found to be 0.5896. When the GI of an economy lies below the threshold, the estimated coefficient between growth and financial openness is -0.0200, which means financial openness will hurt growth. While in the higher regime, the relationship between growth and financial openness is positive and the coefficient is 0.0667. Among the 55 countries and areas, all developed countries' GIs are in the higher regime, while more than 60\% of the developing economies' GIs lie in the lower regime. So when developing economies carry out financial openness policy, they should better the economic and political environment simultaneously.