Financial Development, Financial Structure Change And Economic Growth

Since 1990's, one of important characteristics of global economic development is the ratio of financial assets to GDP rose rapidly, and the level of financial development and financial structure of various countries are quite different. There are great theoretical and practical significances for country study on financial development and financial structure. Thailand is a typical small open economy, one of typical countries of "Asian miracle", as well as the birthplace of the 1997 Asian financial crisis. Since the late 1980's, Thailand has experienced financial repression, financial liberalization, financial crisis and large-scale post-crisis financial restructuring and financial reform. Financial development, financial structure and economic growth in Thailand have experienced major changes, so Thailand is a good case for country study on relationship between financial development, financial structure and economic growth.This thesis comprehensively utilizes financial development, financial structure and economic growth theory, as well as other economics theory, management theory, through empirical and normative analysis, historical and comparative analysis, qualitative and quantitative analysis, and macro-and micro-analysis approach, focuses on financial development, financial structure transition and economic growth in Thailand. The thesis conducts in-depth study on development history of growth, banking, stock market, bond market in Thailand. This thesis conducts empirical study on the relationship between financial development, financial structure transition, banking industry, stock market, bond market and economic growth since financial liberalization in Thailand, and also concludes the causes, effects and deficiencies and proposes appropriate policies for Thai financial development and financial structure transition under the target of economic growth.The thesis is divided into eight chapters. Chapterâ… introduces the background and the significance of this study, and also conduct a brief introduction of the objectives, processes, methods, and innovations of this study. Chapterâ…¡compares the characteristics and development of bank-oriented economies and market-oriented economies, analyzes the relationship between economic growth and financial structure transition based on review the literature of financial development, financial structure and growth. Chapterâ…¢provides Thailand's economic growth history and different characteristics of economic growth before and after financial crisis from the view of finance, concludes the characteristics that Thai economy depends on the investment-led growth. After 1997 financial crisis, Thailand's savings rate kept at a relatively high level, but investment rate decreased significantly, it indicated that financial system's function of saving-investment transformation has been weakened. It is also a direct reason for the slow economic growth in Thailand. Chapterâ…£reviews the development of financial intermediation and economic growth in Thailand, the banking industry in early period was the major channel of capital allocation, during financial liberalization phase the function was weakened; after financial crisis credits especially loans to commercial sector and industrial sector decreased, then the portfolio structure of banking industry transferred to government bonds and consumer loans, and saving-investment transformation is also weakened; the state-owned specialized financial institutions mainly provide loans under the government's guide, while the other non-bank financial intermediaries mainly provide consumer loans. Chapterâ…¤reviews financial market development and economic growth in Thailand, there were two greater prosperity of SET during the period of financial liberalization with many IPOs and overseas funding support, and the period under Thaksin government with large-scale privatization of state-owned enterprises; after the financial crisis, Thai Bond market was promoted by the finance for crisis cost and the increase of foreign exchange reserve, the outstanding of government bonds expanded rapidly, the state-owned enterprises and large private enterprises gradually utilized bond financing as a major financing channel, the bond market's progress significantly; there are still some shortcomings of Thai financial markets, such as concentration in few sectors and enterprises, small scale, few products, and low liquidity, etc.. Chapterâ…¥conducts empirical studies on the relationship between economic growth and financial development, financial structure, banking industry, stock market, bond market, the study period is divided into financial liberalization and post-crisis period, and conducts multivariate causality test based on monthly data under the framework of the vector error correction model. The empirical study on the relationship of financial development, financial structure and economic growth indicates that the banking-oriented financial structure is helpful for economic growth for both periods in long term, while financial development measured by the financial scale was helpful for economic growth during the financial liberalization period, but was harmful during the post-crisis period, so the financial development led by financial market is negative for economic growth during the post-crisis period. The empirical study on the relationship of banking industry, stock market, bond market and economic growth also indicates that the financial expansion led by financial market in the post-crisis period is not helpful for growth because of the improper capital allocation of financial market, including SET and bond market, and it is also indicates that the market-oriented model is not fit for Thailand. However, banking industry's long-term function for growth is positive, so the development of banking industry shall be supported to improve the long-term growth potential. Chapterâ…¦conclude that the causes of Thai financial development and financial structure transition are the transformations of Thai government policy, economic growth model, credit policy of banking industry and financial structure of corporate sector. Thai financial development and structure transition is helpful for the stability of economy and financial system, but its function of saving-investment transformation was weakened, the financial sector developed slowly, and results in the inappropriate capital allocation, especially the lack of financial access to small and medium enterprises and rural areas in Thailand. Based on the abovementioned studies, the thesis proposes policies under the target of economic growth for Thai financial structure and financial development. Chapterâ…§provides summary and research prospects as a conclusion.In conclusion, after the 1997 financial crisis, the financial structure of Thailand was forced to be more market-oriented, stock market expansion was mainly driven by the privatization of state-owned enterprises, and bond market expansion was mainly be driven by the crisis cost and foreign exchange reserves in a passive manner, the development of banking and intermediaries were repressed, and financial access for the real economy sector was shrinking, actually allocation functions of the entire financial sector was reduced. According to the empirical conclusion, the financial expansion led by financial market is not helpful for growth, and the bank-oriented financial structure is helpful for growth, so the banking sector shall be supported strongly to improve the growth potential. Because Thailand is a typical middle-low income developing country and dual economic characteristic is distinct, both the financial intermediaries and financial market have value and room for development. The financial development and financial structure should be a collaborative model between the financial intermediaries and financial markets, and also should attaches importance on banking industry from now on. Whether the financial system is market-oriented or intermediary-oriented should not be overemphasized. Thailand should improve financial efficiency and expand size of financial system by strengthening the rules and regulations system, integrating supervisory institutions, improving financial access, increasing competition degree of banking system, diversifying capital market, strengthening links and co-operations between banking and financial market.