Study On Issues Of Financial Development

In the theoretical frame of modern financial development, this thesis analyzes the economic effects of financial development, and the factors which influence a country's financial development.First, using the normal indicators in the research of financial development, Chapter 1 summarizes the history and status quo of China's financial development. During the last 30 years or so, China's financial structure has been changed remarkably, with some characteristics as followings: high level of monetarization, financial intermediation system being in the highest flight, lower financial efficiency, and some regulations on finance prices.Secondly, in this paper four economic effects are included:1. The relationship between financial development and economic growth. Chapter 2 summarizes the literatures relating to this issue, and discusses the relationship between China's financial development and economic growth during the period 1978-2006, with the approach of Multivariate Vector Autoregression. Empirical results show that there is a stable relationship between China's financial development and economic growth, and financial development is a factor influencing the economic growth. As far as the financial structure is concerned, banking intermediary system, denoting by credit scale, benefits China's economic growth. However, financial market has not influenced positively economic growth. Moreover, there is a bilateral Granger causality between the development of financial intermediary system and economic growth; and there is a unilateral Granger causality between the development of financial market and economic growth in China, i.e., economic growth boosts the development of financial market.2. The influences of financial development on the reform of state-owned enterprises (SOE). In Chapter 3, a brief mathematic model shows that the diversified and competitive bank intermediary system has hardening effect on the state-owned enterprises' soft budget constraint. And more diversified financial market will make resources allocation optimized. As the empirical results goes, during the period of market-oriented transition of banking intermediary system, the scale and structure of loans from banking have changed to benefit the optimization of sources allocation. With the shrinking of finance subsidy from governments, financial system has been the main approach for SOE's soft budget constraint. During the formation of competitive banking intermediary system, non-performance loans rates, the main measure of soft budget constraint, has been declining, which suggests the hardening effect of the development of banking intermediary system on the SOE's soft budget constraint.3. Financial development and entrepreneurship. Using the panel data of provinces during the period 1994-2006, Chapter 4 discusses through a varying-coefficient model the relationship between the sum of entrepreneurs, who own private enterprises and self-employed-individual enterprises (standing for entrepreneurship), and financial development. The test result shows that the structures of relationship between the two variables are different. Moreover, adding the variable of economic growth in linearity and non-linearity style respectively, the test result by the intercept change model shows there is a U-type relationship between two variables.4. Financial development and income inequality. Empirical results in Chapter 5 show that there is a stable long-term relationship between income inequality in the whole country and financial development; and there is also such a stable long-term relationship among urban citizens and rural population. During the period 1978-2005, financial development Granger caused the income inequality in China. Moreover, the linearity or non-linearity relationship between financial development and income inequality is tested, finding that there are inverted-U-shaped relations between these variables standing for financial development and income inequality, except for the variable of security market development.Thirdly, four factors influencing financial development are analyzed. In Chapter 6, with a mathematical model, the paper discusses the relationship among capital accumulation, financial choice and financial development, and concludes that equity market emerges endogenously with more capital accumulation. Based on foregoing theoretical analysis, this chapter discusses the inevitability of the emergence of China's stock market, too.Chapter 7 summarizes the general conclusions in the region of law and finance. And from the view-point of law origin, this chapter discusses the relation of China's law system and the status quo of its financial development.More and more scholars attach importance to the role of the interest groups in financial development. Chapter 8 reviews the theory of interest group in financial development and put out its policy implications for our financial development, that is, to restrict the negative effects of interest groups on financial development through completive competitions.In Chapter 9, besides summarizing the literatures about trust or social capital and financial development, the author discusses the different levels of trust in the provinces and financial development. Empirical results show that high trust benefits fast development of China's security market. And the relationship between insurance and trust affirms the importance of trust to the development of insurance business. The relation between the behavior of saving and trust accords to relating hypothesis.