Research On Influence Of Financial Development On Economic Growth In Russia

Whether as mechanism of allocation of resources or means of indirect macro-control, the modern financial and economic theory show that finance occupies an important central position in the running of the modern economy. The reason that finance is particularly important in the modern economy is because close and complex relationship between financial system development and economic growth. Some theories argue that financial development can promote economic growth and even become a sustainable economic growth model, while other points believe that economic growth lead to financial development, literature of analysis on relationship between the both sides are numerous. It shows undoubtedly that research on financial development influencing on economic growth that I have chosen is worthwhile explored very much.For the research on financial development influencing on economic growth, Russia is a good object. From an economic point, during economic transition period that from 1992 to now, what Russia experiencing is that the establishment and continuous improvement process of modern financial system and market economy. For the purposes of the Russian national economy, it has an important role in financial system not only for Russia itself but also more practical significance to sustained and stable growth of the Russian economy. In particular after the financial crisis in 2008, on the one hand, still mainly relying on export of oil and gas to restore economic growth lay hidden for possible next crisis. On the other hand, lack of new growth model leads to the Russian economy growth still in a recession or enen stagnation state, and some literature hold a view that such sluggish economic growth may last a long time. Therefore, the Russian economy is facing a lot of uncertainty in the future. So on this point it is imperative to explore this issue.As for the world economy, although Russia and other emerging economies have not yet become main factors to operation and development of global financial system, but they have been starting to become major force to global financial system development. Their stability and development can play its due role for the stability and development of the global financial system. On the contrary their frequent fluctuations of the financial system as well as their large volatility could bring to the global financial system instability inherent threat. Therefore the analysis of the financial system and the financial institute in Russia and other emerging economies becomes very necessary. Because it helps to better understand the reasons for the vulnerability of the global financial system, then thus can reduce the negative impact on the stability of the global financial system.At the same time I notice that for the research of economic growth in Russia mainly in the following three aspects. Firstly, institutional factors caused the transitional crisis, which resulted the 1992-1998 recession in Russia in the early stages of economic transition. Secondly, from 1999 to 2008, due to improvement of terms of trade in Russia and international high energy prices, Russian export caused economic recovery and nearly a decade of rapid growth. Finally, from 2009 to the present, fluctuations(first rose then fell) in international energy prices and industrial structure problems caused economic growth to tend to stagnate and volatility of Russia economy. The research on the Russian financial system focused on financial reform(including financial intermediaries and financial market reform), financial liberation(including aspects of financial risk, financial regulation, financial institution,etc.) and other related issues, less involving in theoretical defining and empirical measure on Russian financial development, then systematic analysis of its influencing on economic growth. Thus, attempting to research on Russian financial development influencing on economic growth can enable existing research to become more plentiful.Around this research topic, in this dissertation, I first select and determine the theoretical background and analysis frame work of research.Neoclassical theory of political economy came to draw a conclusion that finance is critical through analysis of currency, credit money, bank’s emergence and development. In financial sector, it generates financial endogenous growth theory on the base of an important achievement in absorption of new institutional theory and endogenous growth theory during this period. So the current research on financial development influencing on economic growth are conducted mostly in the financial framework of endogenous growth. This analysis framework considers that financial system is endogenous of economic growth. The financial system consists of two aspects: one is endogenous financial intermediaries whose advantage is effective supervision to producers; the other is endogenous financial market whose advantage is searching and summary information. In this framework that finance is endogenous of economic growth, most studies have demonstrated that financial development promotes economic growth. Promoting financial development steadily can avoid economic fluctuation.In the macro-theoretical background said above I choose, through the contrast between financial endogenous economic growth framework and reality, I can easily find the following specific issues. What is the financial development? What Russian financial development have embodied since the transition? What have been changing in the status of economic growth? What is the flow of financial resources? What kind of link exists between this and determinants of economic growth? What extent a useful role the financial system can play when transforming financing to investment demand? Does ―shock‖ type of financial transition(development) affect stability of economic growth? What the mechanism is that Russian financial development influencing on economic growth? Throughout the process of economic transition in Russia whether financial development promotes economic growth? If the answer is yes, then what path that Russian financial development promotes economic growth relying on? If the answer is no(the effect is not very large), so what are the problems of Russian financial system(development)?According to analysis and solution of these problems, except chapter one introduction, the specific content of other chapters are as follows.Chapter two is the theoretical basis of this paper, which discusses the internal logic of financial development influencing on economic growth. This part includes the following three elements. Firstly, I introduce the theory of financial development briefly, then through combing the relevant literature of financial development theory, defining theoretical implication of financial development, while determining indicator system of measure of financial development. Secondly, I use two theoretical models to elaborate the mechanism of banking influencing on economic growth and capital market influencing on economic growth, at same time, elaborate the two paths that financial development promoting economic growth, which are capital accumulation and technological innovation. Finally, I believe that financial developing only in accordance with a certain order and condition, may it reduce the volatility of economic growth.I elaborate the characteristics of facts of Russian financial development in chapter three. I believe that under the influence of international finance and economy context, domestic economic shock therapy determines the radical tactics of financial transition development, selects the development path of financial liberalization, designs specific programs related to financial development in Russia. After elaborating the establishment and evolution of the Russian financial system, evaluation of Russian financial development by measure indicators of financial development shows that although there is gap between the level of financial development in Russia and that of in developed countries, but it made some achievements, and radical transition development make banking and capital market contain a lot of risk.I mainly describe the economic growth and factors in Russia since the transition in chapter four. I divide the process of economic growth into recession period, growth period of recovery and close to stagnation period since 1992 according to the very different performance at defferent time of economic growth. Analyssis of three stages shows macroeconomy performs the dual characters of growth and volatility, and has close relation to the development of the energy sector. At same time, I believe that investment is the primary factor which affecting the energy industry and economic growth, and financial system is the major role who control the investment.Through the analysis of corporate(industry) investment and financing I elaborate the correlation between Russian financial development and economic growth in chapter five. I believe that although in the early transition worsening financial functions resulted economic recession, but on the whole transition process, specific performance in investment, financing and economic growth shows that Russia’s financial system played a role in resource allocation relying on criterion of profit maximization under constrains conditions, thus promoting economic growth. But from the perspective of financing structure, due to the degree that economic growth depending on capital that transfered from national income by financial system is not very high, I believe that the extent of promoting that financial system on economic growth is limited, and non-steady financial development(radical development) has a negative influencing on stability of economic growth. Just second two points show that cost of ―shock‖ type institutional transition is high than that of ―gradual‖ type institutional transition.I make empirical test to Russian financial development influencing on economic growth from the perspective of fixed capital investment by using the method of measurement of time series during Russian economic transition from 1992 to 2012 in chapter six. The main conclusions include: Russian financial development stimulated(fixed capital) investment activities, thus promoting economic growth, however financial development has not yet become the dominant factor of economic growth. In the process of promoting economic growth, the role of banking is greater than that of capital market.I make empirical test to the path of Russian financial development influencing on economic growth by using vector auto regression model(VAR) based on time series during Russian economic transition from 1992 to 2012 in chapter seven. The main conclusions are: Russian financial development promotes economic growth mainly through capital accumulation, and do not bring significant technological innovation, so did not promote economic growth through technological innovation.There are conclusion and inspiration in chapter eight. I summarize research findings, including elaborate some reasons that weakening active role of financial development. Then I analyze inspiration that bringing to China as transition country. Finaly I point research direction in the future.