Regional Financial Structure And Financial Development Theory And Empirical Research

Modem financial institution is a systematical framework with which mobilizes and amasses scattered resources, channels resource flow from lower productive organizations to higher productive organizations for optimum resource allocation, reduces the transaction costs in process of payment, settlement and agency for merchandise and factor endowment trade, discloses market information and diminishes information asymmetrical distribution and information dominancy, disperses asset risks etc. As the progress of science and technology, integration and specialization of production and expansion of trade scope proceed, not only is finance a result of economy growth and development, but alsa a driving-power of economic growth and structure perfection. The roles of finance is by no means universal and unconditional, it depends on favorite situation at macro economic level, effective financial supervision, and healthy social environment and conscience as well.The main theme of financial development in 20th century is the very competition and innovation. Competition gives rise to the transformation of financial operation from relationship-driven to price-driven mode, as a result financial market fluctuates more often and fiercely; competition also incurs higher efficiency of financial services, lower costs and asset yields, the institutions have to raise the fiscal leverage to maintain a suitable yield of capital, then the capital adequacy ratio deteriorates gradually; the further dispersion of ownership of institutions and management specialization complicates surplus allocation of property rights; the moral hazard of deposit insurance weakens constraints from market and society as a whole, from which the financial risk possesses a strong externality; finally the deregulation process has also accrues to the fierce of competition. Competition push innovation forward and vice versa, the repeated process has changed the whole industry. But it's unfortunately that the innovation of the governing institution lags behind the innovative pace of financial instruments, operations and organizations, so does the financial theory. The financial crises happened not only in new emerging economy and transitional economy, but also matured market economy. Traditional financial theory is now facing a pressing predicament to explain and forecast the trajectory offinancial practice.The traditional monetary and financial theory inherits classic micro economic hypothesis such as given ownership institution, certain factor endowment, rational agents, complete market, perfect contract, perfect competition, enterprises are production functions and consumers are utility functions, agents and enterprises all maximizes income and profit, market activities are of frictionless certainty, money and financial are exogenous instruments and merely affects the commodity prices and general price level. After Keynes revolution, monetary supply control becomes a macro means to adjust aggregate demand and supply on the basis of the substitution nature of monetary assets and actual assets, the correlation between the real monetary-balance and interest. The financial deepening theory or the theory of financial development replaced the substitution relation with a supplemental one and emphasized the financial liberation process and deregulation measurements, but they still fail to recognize the essential functions of institution which is hardly necessariiy in place, or has little actual effects even if existed. It is especially the case in new emerging economy and transitional economy. The new institution economics demonstrates the function and efficiency of institution and innovation process based on the fact of limited rational agents, uncertainty of agent behavior, imperfect market and competition, imperfect and asymmetrical information, imperfect contract and transaction costs. That brings a possibility to combine the positive contents of classic economics and principles of new institution economics together, so as to form a new type of theory of finan...