The Study On The Correlation Between Financial Innovation And Economic Growth

According to traditional consensus, "good" financial system should be endowed with effective law system, good accounting standard, transparent financial institution and standard corporate administration. From this point of view, financial system in China is a "bad", but in fact it has achieved the fastest economic growth in world. Economic growth stems from the improvement of deploying efficiency and the raising of producing efficiency, and the financial system has key function to two growth sources. While the economy of China has grown rapidly for 25 years, is the current financial system still effective? The deep research on relationship between financial innovation and economic growth is a key point to explain this problem.The history of financial development is a history of financial innovation, which promotes the evolution of financial structure and the process of financial deepening. In the view of macroscopic, equalization of internal trades in finance and gradual improvement of correlation ratio of finance are shown. In the view of microscopic, it indicates all-round financial services, homogeneous banking facilities and improved micro-financial factors. There isn't the optimum international standard in financial structure, and finding the suitable financial structure is an important task in transforming country. The evolution of financial structure and the deep process of finance also supply motivation and conditions with financial innovation. Financial innovation pushes forward the spiral increase in financial intermediaries and financial market, with leads financial system to an ideal and effective state.There are mainly five essential function of financial system, namely, risk management, information reveal, corporate administration, motivating savings and convenient transaction. Financial innovation pushes forward capital accumulation, productivity improvement and technical development to act on economic growth through affecting elaboration of these five functions. There are three theoretical models that economic growth affects financial innovation, namely, threshold effect, capital accumulation and bankrupt's cost, which make economic growth become internal motivation of financial innovation. Besides these three mechanisms, government control also leads to financial innovation. On the basis of theoretical analysis, in two sides of microscopic and macroscopic, this thesis respectively sets up two theoreticalmodels on the correlation between financial innovation and economic growth, and analyses relative mechanism of them deeply and accurately.By using such measurement as correlation test, cross spectrum test, Granger causality test, cointegration test and nonested test, this thesis examines the data of finance and economy in China, so it finds out that finance lags behind economy, the lack of market mechanism and the lack of coordination of arrangement of the deep process of finance, and shows that financial growth in China is demand-following, finance acts on economy through quantitative expansion. In order to conform to it, the entire objective of financial innovation in China includes perfecting of market system, developing investment tool, designing multivariable financial system and perfecting monitoring system. Three key points to push forward financial innovation are intensification of micro-function of financial innovation, priority of institutional innovation, and the implement of financial innovation, according to different stages.In short, financial innovation and economic growth have interaction mechanism which has strong connection. On the basis of empirical analysis of the data in China, it finds that financial development in China is demand-following, the lack of market mechanism and the lack of coordination of arrangement of the deep process of finance. Therefore, only can consistent financial innovation push forwards finance market so that it can form a benign circulation between financial innovation and economic growth, and can guarantee rapid sustainable growth of economy in China.