The Research And Empirical Analysis On The Relation Between Financial Development And Economic Growth

Economic growth and Financial Development are two important economic questions for discussion. The meaning of economic growth includes the continual growth of GDP and the optimization of economic structure. The theory of endogenous growth describes the relation between technical progress and economic growth. Financial Development means the development of financial assets, financial system, financial markets and the optimization of financial structure. Great progress in economic growth has been achieved during the past twenty years after economic reforms in China. At present, the problem of the reform of financial system and the manner of economic growth are very important in China. So, the study of relation between economic growth and financial development is important too.This article includes four sections. In section I , Theory of financial development, empirical studies and frame of the article are spelled out. Section II and III present models of endogenous growth. Mechanism between economic growth and financial development lie on three aspects: saving, the ratio of investment and capital marginal productivity. The content of empirical study lie in section IV. Using Granger causality tests and econometric analysis based on Cobb-Douglas production function type equation, we got empirical results that indicate that there is a two-way relationship between financial development and economic growth. The results from regression model reinforce indicate that financial development promote economic growth in China. Section V put forward some politic suggestions including improvement of efficiency and quality in financial system, the reform in financial mechanics and supporting non-national-owned bank and middle-sized or small-sized bank, stoke market and bond market.The innovations of this article lie in two aspects. Firstly, Using Granger causality tests study the relationship between financial development and economic growth. Secondly, use new index about financial development that more proper than ever in econometric analysis based on Cobb-Douglas production function type equation. In the article, the index of financial assets is used for representing financial development, and the index of non-bank assets represents the change of financial structure. The relations between financial development and economic growth are overall studied in this article. Empirical results indicate that there is one-waynrelationship between financial development and economic growth. Money supply, financial assets and capital assets make notable impact on economic growth. But, the relation between the development of capital market and economic growth is feeble.