Abstract: Based on the panel data of 61 countries from 1981 to 2014 and employing the fixed effect panel model and the TSLS regression method, this paper conducts an empirical study on whether financial efficiency can restrain economic fluctuation and smooth the economic fluctuation in financial openness. The findings show that the financial efficiency has a certain restraining effect on economic fluctuation, especially has a significant restraining effect on the economic fluctuation in countries with middle and higher income, and the improvement of the financial efficiency can significantly smooth the economic fluctuations in the financial openness of these countries. However, the financial efficiency of the countries with lower and middle income has no obvious restraining effect on economic fluctuations, nor has it smoothed the economic fluctuations in the financial openness of these countries. Therefore, while expanding the financial openness, it is necessary to improve the capital formation rate, further promote the reform of the financial institutions, speed up the liquidity of funds in the capital markets, and improve both the efficiency of financial institutions and the efficiency of financial markets, all of these can help the steady growth of the economy.

Key words: financial efficiency; financial openness; economic fluctuations