The Relationship Of Financial Development And Economic Growth Based On The Method Of Outlier Analysis

The identification of outliers has been widely used in economics,medicine,and engineering.As the empirical research samples have been extended from time series data and cross-sectional data to panel data,the original methods of identifying outliers have existed a lot,such as the expansion of data sample capacity,the optimal regression model and the optimal outlier discrimination scale.Based on the existing outlier identification method,this paper focuses on establishing and demonstrating the outlier identification method by the fixed effect panel data model,and provides a new outlier identification method in empirical research.Considering outliers containing the singular information,this paper is studying the financial development's impact on economic growth in order to obtain more meaningful conclusions.The study of the relationship between financial development and economic growth has been concerned by many scholars,and the financial development is related to economic growth has become the mainstream conclusion.But financial development(especially banking development)is negatively correlated with economic growth along with the increasing damage caused by financial crisis and other information(i.e.singular information corresponding to outliers)to economic growth.This paper supports the argument between these two different viewpoints and fully considers the influence of singular information corresponding to outliers on the relationship between financial development and economic growth,which can effectively improve the accuracy of economic prediction.The research process can be carried out by two main lines:(1)Fixed-effect static panel data model:The impact of financial development on economic growth based on outlier analysis.Based on the panel data 77 countries from 1988 to 2014,the combination between the Least Squares Dummy Variable(LSDV)estimator and Least Trimmed Square(LTS)estimator,denoted as LSDV+LTS estimator,this paper can identify outliers by LSDV+LTS estimator.Studying the impact of financial development on economic growth after considering outliers or only considering the singular information(outliers),this paper obtaine the complete and more systematic research on financial development's effect on economic growth,(2)the fixed-effect dynamic panel data model under the lag of the first-stage explanatory variables:the study of causality between financial development and economic growth based on outlier analysis.Compared with the static panel data model,the dynamic panel data model fully considers the inherent dynamic properties of the link between financial development and economic growth to study the dynamic adjustment process of the link.Based on the panel data 48 countries from 1988 to 2014,this paper proposes a new(LSDVC+LTS)estimator combining LSDVC estimator and LTS estimator to consider outliers(singular information)within the reasearch of the causal relationship between financial development and economic growth.Considering the singular information(outliers)in studying the impact of financial development on economic growth,this paper can obtain more accurate and more systematic research on financial development's influence on economic growth.The empirical results of this paper show that:(1)Outlier analysis based on fixed-effect panel data model can effectively improve the accuracy of data processing,(2)Although the risk and singular information of financial market could increase the potential of financial crisis,bank development and stock market development are still positively related to economic growth after removing the outliers(singular information)in the sample.When the outliers(singular information)are not considered,it can be found that the development of the banking industry is negatively related to economic growth.After considering the removal of outliers(singular information),The paper find that the negative effect can be changed into positive effect.The results of robustness test show that the conclusions remain basically unchanged.(3)Based on the method of this paper to identify outliers and analyze the singular information within them,the paper find that misreporting and underreporting are not accurate singular information,and proposes more reliable and singular information such as international events,major domestic disasters,changes in domestic and international situations,etc.This paper realizes one-to-one correspondence between outliers and singular information,and finds financial development is negatively correlated with economic growth when considering only singular information(outliers),(4)The research financial development s impact on economic growth(A)can be decomposed into the financial development s effect on economic growth only considering singular information(outliers)(C)and the financial development s effect on economic growth after removing singular information(outliers)(B),denoted as A=B+C.The specific contents of the effective and singular information in the financial market and the banking industry development s positive effect on economic growth in this paper,which can supply the government with the useful economic policy.The paper offers the financial department the way to integrate the singular information of the banking market and the stock market development,establishs a more effective economic strategy,and rationalize the allocation of financial market capital to promote long-term economic growth.