Analysis Of Economic Growth Effect Of Exchange Rate Regime:Based On The Perspective Of Financial Development

Since the collapse of the Bretton Woods system, the influence of different exchange rate systems on economic growth has always been concerned and explored. With the continuous improvement of financial development and the deepening of the global financial integration, choosing the exchange rate regime which matches its financial development level is important for the healthy development of economy.Based on the research of Husain et al(2004) and Aghion et al(2009), we study the data of 102 countries from 1984 to 2010 to analyze the relationship between exchange rate regime and economic growth, and systematically examines the role of financial development, financial structure and financial openness in affecting economic growth. The empirical results show that, in general, when the level of financial development and financial openness is low, and the financial structure tends to be bank-based, floating exchange rate is not conducive to economic growth. By adding the interaction of exchange rate regime and financial factors for empirical analysis, we further find the exchange rate risk impact will be offset by the combined utility of financial development and floating exchange rate regime, so as to promote economic growth. In addition, the economic growth effect of financial development under floating exchange rate regime is inverted U-shaped curve, for developing countries, to enhance the level of domestic financial development is beneficial in promoting the economic growth under floating exchange rate regime. Finally, some recommendations are proposed to China.