The Financial Deepening Of Financial System Development And Economic Growth

This article talks about the process of financial deepening and relations between financial development and economic growth, by comparison of consequences of China and Korea, and provided directions of financial reform. The following is the summary of each chapter:Chapter One: Because of the innovative studies during the 1960s, people had realized the need of enhancing financial organizations. Especially when U.S. economist E.S.Shaw and R. I.McKinnon extensively analyzed the experience research of the "financial restriction" policy in developing countries in 1973, they put forward a policy proposal of "financial deepening", formed a "M-S school" with their followers. They also emphasized the need of pursuing liberalization strategy to realize financial deepening, but early theory of financial deepening was rough and simple. The scholars with "financial restriction" idea pointed out that the discussion by M~S school was focused on "liberalization". Government could prevail on private financial organizations to take society-benefiting measures by creating renting opportunities. To battle this viewpoint, the scholars embracing "financial liberalization" such as Fry struggled in pushing financial liberalization to promote financial development and economic growth. They also emphasized the precondition of financial liberalization, while McKinnon put forward the proposed process of financial liberalization. Since 1990s, many researches have made breakthrough to the early "financial deepening" theory by M-S school, their achievements was called "second generation or 90s generation of financial development theory". The two generations of financial development theory have many differences in aspects such as contents, spectrum, assumption and policy meaning. In 1990s, scholars studying financial development had not only studied the formation and development of financial system, including agencies such as bank, and financial markets such as stocks and bonds, but also studied the interactions between financial system development and economic growth, as well as the corresponding policy meaning. The evolution of endogenous growth theory led to the expansion of the researching spectrum of financial development theory in 1990s. These theories provided precious practice proof test to the developing and changing economy. Besides, the financial development theorists used great variety of specifications and actual demonstration models in their study during the 1990s.Chapter Two: In China' s about 20 years of high speed economic growth, the speed of financial capital growth is also very fast. Although China realized diversity of financial capital structure and growth in numbers, but the financial growth must still be passively applied to the performance of economic marketing. In fact, it can be said that the high financial deepening index in China appeared under circumstances of singularity of financial tools, the monopoly of banking system, the underdevelopment of financial markets. Maintaining positive real interest rate is also a factor of financial capital growth. But the government instead of market decides the interest rate. In the later half of 1990s, China' s positive realinterest rate was realized through decreasing of structural price. It should be noted that the inefficient residential deposit and high-level financial deepening caused but bad loan must be costly. Apart from the negative effect to residential income growth, the bad loan problem became an obstacle of bankir em reform. In fact, some financial restriction policy could create leasing opportunities, but these opportunities in China are mainly in the state-owned banks and enterprises, so that it encouraged economic monopoly by nation-owned branches. On the other hand, because of the negative effect of financial limitation policy, the development of financial market, such as stocks and bonds, is still in the elementary level. For example, the development of stock markets and bonds markets in China have only limited effect to the economic growth, co...