The Dynamic Impact Of Financial Development On Economic Growth In Central China

Economic growth is both the common goal of human society and one of the most fundamental questions of economics. There has a deep understanding of great role that the economic growth played in promoting people's income increase and social progress since economics had been set up. Scholars had different opinions in the factors affecting economic growth, but the financial factor (economic capital factor) have been verified since economics was built. And it is one of the most important factors that promote the economic growth. At present, the economic growth of central China is facing up an unprecedent opportunity and the financial market is developing rapidly. Therefore, it is so important to research the relationship between financial development in central China and economic growth.This paper mainly try to explain the dynamic influences of central China's financial development on economic growth. We first construct the model which will be used in empirical analysis. From the AK endogenous growth model, we rebuild AK model in order to divide investment into two factors:banking and stock market. Through this deduction, we get steady economic growth rate. Then through the change of AK economic growth model, we construct econometric models which will be used in empirical analysis.This paper uses PMG (Pooled Mean Group) which was introduced by Pesaran et al. in 1999 to estimate short term and long term dynamic influence of financial development on economic growth. We come to conclusions that in the short term, the development of banking impede the real output growth, but in the long run, it will promote the growth. The development of stock market have the same effect on real output with bank sector. In the short run, it will impede the growth and in the long run it will promote the growth. Most of the regression coefficients are non zero after using Wald parameter test and PMG regression parameter is not the same after using LR test. Then according to the regression results, we construct VAR(vector auto regression) equation, using the impulse response function to simulate dynamic impact of the financial development on economic growth. Impulse response analysis showed the same results with PMG analysis.Finally, on the basis of previous research, we put some suggestions in financial development and economic growth in central China. We think that the stock market should "go out" and the banking sector should "bring in". That's the key to the development of finance and economy.