Research On The Causality Relationship Between The Development Of Finance And Mining Industries In12Provinces Of Western China

Mineral resources are very important for production processes of human society. Miningindustries provide basic materials for a wide range of industries in national economy. Thosemining industries have the features of high risk, high demand of money and long investmentreturn period, which makes financial support quite necessary in the development of miningindustries.Most of China’s mineral resources come from western China. The good metallogenic geologicalconditions result in big mineral resource reserves in western China. More than50%reserves ofChina’ natural gas, coal, copper, phosphorus, lead and rare earth was found in western China. Inorder to find the quantity relationship between the development of financial industry and miningindustries in western China, this paper researches on the relationship in12western provinces inChina during the period of1997-2011. Mining industries this paper considers include mining andwashing of coal, mining of oil and natural gas, mining of ferrous metal ore, mining of non-ferrousmetal ore and mining of non-metal ore.The procedures of this paper are as follows: Firstly, we analyze the trend of mining industries andfinancial industry in western China after collecting the data of financial valueadded and the outputvalue of mining industries in each province. Secondly, we use the fraction of deposition in GDPand the fraction of loan in GDP as two indicators of financial development, output value of miningindustries as indicators of mining industry development. The unit root test, Johansen cointegrationtest are used to test the equilibrium relationship between the development of financial industry andmining industries. Thirdly, we build an error correction model to test the long run causalitybetween the development of financial industry and mining industries. After that, Granger causalitytest is used to test the short term causality relationship. Lastly, we conclude the relationshipsbetween the development of financial industry and mining industries both by province and byindustry to find the features of these relationships. Also, the reasons behind these relationships aswell as some policy recommendations are given.There are three innovations in this paper: Firstly, we found three main patterns in the tendency offinancial development and mining industry development. Secondly, different provinces anddifferent industries are considered in our empirical research. By using large amount of data, weobserve the relationship between financial industry and mining industries from different region,time scale and industry. Thirdly, the short term and long run causality relationships between thedevelopment of financial industry and mining industries are found.Our result shows that: From the view of tendency, there are three patterns in the relationship between financial industry and mining industries in western China: both of financial industry andmining industry develop quickly, the mining industries develop quickly before financial industryand financial industry develops quickly before mining industries. In the long run, there arecausality relationships from the development of financial industry to the development of miningindustries in most provinces. The causality relationships from mining industries to financialindustries are less than the causality relationship from financial industries to mining industries.Some of the long run causality relationships cannot be found in short term.The transportation, water, energy and communication conditions of western China have beenimproved a lot after the Western Development Strategy, which laid a sound foundation for thefurther development of the western economy. Mining industries would still be the motivation forfuture development in western China due to the rich mineral reserves. According to our findings,western provinces should try to develop their financial industry as well as considering the localresource conditions. Some detail polic ies should be taken, just as broadening the financing sourcesfor mining industries and to promoting the development of the securities industries. After that,mining industries in western China could obtain a long run prosperity.