Financial System And Economic Growth

Division of labor is the real source of economic growth. Accumulation of human capital and technological innovation, both of which are generally regarded as factors of modern economic growth, are in fact exterior characteristics of division of labor. Evolvement of division of labor influences institutional change, institutional structure and its change determines evolvement of division of labor in reverse. Market institutions and fiscal institutions are two kinds of institutional arrangement that play decisive roles in modern economic growth. To remedy market failures is generally considered as the reason that fiscal institutions exist. But the view that once we can find out the potential economic effects of fiscal institutions then we can explain why fiscal institutions exist and why they work as that makes mistakes of functionalism. The Public Choice Theory, which analyses the process of how fiscal institutions operate, tells us why fiscal institutions often trap into an inefficient situation. Once we are convinced of the major issue we confronting is that we have to choose between the imperfect market institutions and the imperfect fiscal institutions, it become necessary for us to improve the efficiency of the fiscal institutions to seek a sustainable and stable economic growth.The dissertation contains six chapters. Chapter I is an introduction to this dissertation. It includes the background and the theme of the dissertation, the progress of related subject studied in China and abroad, its main innovation and limitation, and its structure and main contents.Chapter II Division, Institutions and Economic Growth. The New Growth Theory, which develops on the basis of the Neo-Classical analytical framework, devotes to incorporate factors of accumulation of human capital and technology progress into its meofefic models. However,although the New Growth Theory succeeds in describing the major characteristics of the post-industrialization era's economic growth and settles solid theoretic foundation for the knowledge economy age, it is unable to answer why so many societies fail to realize their expected economic growth when they possess corresponding technology and knowledge. In fact, such a theoretic difficulty arises from the wrong analytic framework adopted by the New Growth Theory. Because its growth model contains the transaction cost parameter decided by organizations and institutions, the New Classical Economics, which revives the main idea of the Classical Economics over the Neo-Classical body, is able to solve the problem. The New Classical Growth Theory adopts Adam Smith's core ideas such as "Growth arises from division", "Division is limited by scope of market". It takesaccumulation of human capital and technology progress as exterior characteristics of evolvement of division of labor, and evolvement of division of labor and economic growth is closely related with the parameter of transaction cost Such ideas lend us a key to analyze economic growth problem through the angle of institutions. The New Economic History School also pays much attention to the reciprocity between division, institutions and economic performance. Douglas C. North (1990) has constructed a set of theories about institutions and institutional change to analyze the progress of economic history. Based on the New Classical Growth Theory and the New Economic History Theory, this dissertation sets up an analytical framework about evolvement of division, institutional change and economic growth.Chapter III Necessity of Fiscal Institutions. Enterprise, market and government are three basic forms of organizational and institutional arrangement to organize division of labor in modern society. Compared with fiscal institutions, enterprise institutions can be regarded as a special part of market institutions: factor market institutions. According to the contemporary theory of Public Economics, if free market institutions could work as our wishes, we need not resort to fiscal institutions. It is the limitation of the fun...