Exploring the impacts of financial development on economic growth through financial openness in three urban agglomeration regions of China

This study explores the nonlinear relationship between financial development (FD), financial openness (FO), and economic growth across China’s three key urban agglomerations: Jing-Jin-Ji, Yangtze River Delta, and Pearl River Delta. Using panel data from 10 provinces, municipalities, and Special Administrative Regions over the period 1995–2021, the study applies a panel threshold regression model to examine how the growth-enhancing effects of FD vary across different levels of FO. The results reveal that when FO is low (FO < 0.4253), FD has a strong positive impact on economic growth, indicating that domestic financial systems play a pivotal role in less open economies. In moderately open regimes (0.4253 ≤ FO ≤ 0.43720), the positive effect of FD weakens, possibly due to transitional inefficiencies or policy misalignments. Interestingly, in highly open regimes (FO > 0.43720), the impact of FD strengthens again, though not to the level observed in closed financial environments. Among the control variables, government expenditure, trade openness, and higher education enrollment negatively influence economic growth, while inflation is positively associated. These findings offer important policy insights, emphasizing the need for region-specific financial liberalization strategies and reinforcing the importance of domestic financial system development to effectively harness the benefits of global financial integration.