Empirical Study On China's Informal Finance, Formal Finance And Economic Growth

As an important phenomenon all over the world, informal finance is especially conspicuous in developing countries. In recent years, informal finance has been a hot issue in academic research in China's marketing process. China is a large developing country in the process of economic transition. And China's formal and informal financial sectors have rapidly developed and constantly grown. And now, China has a double-track financial system. China's economic development, especially the non-state economic development, has an urgent need to accelerate the reforming to the financial system, and to guild the informal finance standardly development.So it is important to the efficient operation of China's economic and financial system that how to consider informal finance, how to understand the interaction between informal and formal finance, how to improve the efficiency of the whole financial system.The existing researches indicate that the informal finance has been an important factor to China's economic growth. It can improve the farmer's income and help the SMEs to financing. However, most of these researches are case analyses or theoretical analyses, and the analysis to the mechanism how the informal finance improves the economic growth is not efficient. This paper analyses the influence to formal finance and the economic level from informal finance, and pose some suggestions to the government. In the theoretical analysis, this paper discusses the comparative advantages of informal finance by comparing the formal and informal finance. And interaction between them is analyzed, which can be divided into "capital-inflow-effect" and "capital-outflow-effect". The former describes the positive effect from formal finance to informal finance, and the latter lead to the indirectly promotion from informal finance to formal finance. Then informal finance is divided into "good part" and"black part" as whether it is reasonable or whether it can promote economic increasing. Based on the deviation, two aspects of the influence from informal finance to the economic development are discussed.In this paper,θ-value method which can describe the relationship between economic and finance is used to measure the scale of China's informal finance, econometrics methods are used to survey the interaction between formal and informal finance, VAR model is used to forecast the direction of the informal financial development in the next few years. The results shows: (1) For one thing, the increase of formal finance is not the reason of the informal financial growth; for the other thing, informal finance can promote the development of the formal finance. (2) Informal finance can promote the economic increasing, although it is a mixed blessing. (3) According to the VAR model, the informal finance, the formal finance and the economic level will continue to grow in the next few years, but their development speed are not exactly same.At last, some suggestions are posed by comparing the informal financial development in other countries and regions, which can be divided into the government and the informal finance.