Financial Intermediation And Economic Growth-Theories, Empiricisms And Policies

In modern market economy, the role that financial intermediaries play has become more and more important. Through providing financial products and services, financial intermediaries play the role of mobilizing savings, allocating resources, facilitating transaction and managing risks, thereby accelerating the capital accumulation and technology innovation of the whole economy. Eventually the financial intermediaries fulfill the crucial function of promoting economic growth. In essence, the existence and development of financial intermediaries is both the request and the result of real economy.This paper proceeds in historical and logical sequence as follows: Section 1 demonstrates different theoretical opinions concerning the relationship between financial intermediaries development and economic growth, involving the relationship between financial intermediaries' functions and growth, financial intermediaries' structure and growth and economic development and financial system structure. Section 2 introduces mathematical models to empirically analyze the mechanism that financial intermediaries development and economic growth interacts, and discloses the inherent defects of financial intermediation. This kind of all-round analysis makes the theoretical framework about the relationship between financial intermediation and growth incline to complete. Section 3 carries out an international comparison and reaches the fundamental regularity that a positive relationship exists between financial intermediaries development and economic growth, and that the development of financial intermediaries is a critical and inextricable part of the growth process. A further study of Chinese practice, through analyzing the impacts that different levels of provincial financial intermediaries have on their rates of economic growth, indicates that China does not follow the expected relationship, i.e. those provinces with high level of financial intermediaries have a rate of economic growth below the average. However, those provinces whose financial intermediations maintain a lower level keep a higher rate of economic growth over the average. These phenomena, to a large degree, derive from the unreasonable structure of Chinese financial intermediations. Section 4 states the direction and implied policies of the reforms of Chinese financial intermediations.