| Most of the extant literature on the relation between financial development and economic growth is, methodologically,"supply-leading", while few people study this topic from the direction that what kind of financial system is best for economic growth. In order to figure out what specific financial system is optimal, first we need to deeply understand what cause economic growth, which is not so clear so far in the literature. The difficulty involved here makes it challengeable to study from this direction. However, this article tries to explore the role of financial development on economic growth from this direction. The main findings and contributions are followed:1. This article clearly states the theoretical framework on how to analyze economic growth from the perspective of financial development. Based on Solow's economic growth model, the endogeneous growth models endogenize knowledge creation and human capital, which explain why the marginal return of capital is not diminishing much better than the traditional models。However, they are not successful in terms of explaining the rapid economic growth of the developing countries. To my best knowledge, so far, we have not established a widely accepted theoretical framework for this issue. In this article, all the factors are separated into two groups, namely fundamental factors and mechanism factors. The fundamental factors include labor, capital, land and so on. This gives us an integrated analytical framework which includes labor, machine and mechanism, based on which we can analyze the dynamic"path"of effective labor growth. The mechanism factors are emphasized. Labor input and expectation effects are among the main causes of economic growth. For the relationship between financial development and economic growth, there are also both factors. However, few studies separate them clearly. By separating them, the outcome will be more stable, the explanatory power will be higher. In this article, I do find this is the case and by doing in this way, the explanatory power improves.2. This article has a comprehensive empirical study on the relationship between financial development and economic growth. There is huge debate in the current academia on this issue. How the financial system affect capital accumulation and effective usage is still not clear. In this article, I collect data from Tianjin and Shanghai, and perform the empirical analysis. Tianjin and Shanghai are in the different development stages. Comparing two cities is unique for our study。In the empirical part, we construct variables indicating financial structure, financial development and economic growth, and based on them, we specify the potential paths that financial development could affect the economic growth. By fully utilizing the econometric tools, such as cointegration test, Granger test, VAR model, and statistics comparative, I empirically analyze the effect and paths of financial development on economic growth. The differences between Tianjin and Shanghai are also compared, from which we find that in different economic growth stages, the role of financial system is different.3. By fully analyzing the empirical results, the extant literature and survey results, policy suggestions are also given according the reality of Binhai New Area. Financial innovation is systematic. It includes (1) well functioned, well structured and internationalized financial system; (2) it should have different financial products for different industries based on their characteristics; (3)coordination among all banking and nonbanking financial institutions on organizational structure, management styles and allocation of decision rights on policy implementations and financial regulations; (4) efficient and effective law system is also highly critical. These four aspects are related to each other, and jointly form the financial service system. This article takes the advantage of system analysis, based on the real financial environment of Binhai New Area, proposes several policy suggestions, both for the government and as well as various financial institutions.4. From the theories of value, effective labor is the fundamental for economic growth. Whatever the process, any economic growth should be due to the input of effective labor. If we exclude the endowment transferring part from the counted GDP, the wealth accumulation is solely from the growth of effective labor. The effective transformation from labor input to effective labor depends on the mechanism environment, the condition of the labor itself, and the improvement of the machines.5. Different financial systems will have different effects on the amount of resources that could be allocated, the allocation efficiency of these resources, the technology innovation and the economic efficiency, all of which could induce industrial production and the transformation of the whole industrial structure, which will ultimately contribute to the economic growth. In the take-off stage of economic growth, the expectation adapted from government consumption and financial development will play a very important role in economic growth. Expectation effect is the outcome of mechanism effect. The mechanism effect on economic growth is timely and also in need of continuous innovations. The basic reason that pure consumption and the adjustment of production structure could drive economic growth is that they will accelerate the transformation of input and output. Pure consumption and the adjustment of production structure should be taken as mechanisms.Besides all the above, this article also discusses the role of increasing factor input and improvement of mechanism environment, and also the potential ways to do this. The results from this article are critically useful for innovation and development, both on the national level and the regional level. To study financial development from the direction of economic growth is still in its infancy. This article is quite tentative in this sense, and some of the quantitative analysis is worth further work.
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