The Inhibitory Effect of Openness on Financial Development in China

Based on dynamic panel data model,this paper uses the data of 30 Chinese provinces over the period 2000-2009 to analyze the impact of openness(trade openness and financial openness)on financial development in China.Moving beyond existing literature,we have considered a wider range of financial indicators,including the size,efficiency and competition of financial system to ensure the robustness of results.The result shows that the promotion of openness does not have a significantly positive effect on China's financial development. Instead,trade openness can hinder the improvement of size and efficiency of the financial system.We attribute the negative link to the discordance between trade openness and financial openness as well as the mismatch between trade structure and financial structure in China.