An Inquiry Into The Most Suitable Financing Structure For Regional Economy Development

Since the reform and opening -up, China's economy has made significant achievements while the economic and financial gap between different regions widened. If this issue cannot be solved properly, it may affect the long-term sustainability of the overall economic development. It is proved that financial factors have great impact on the economic development by former researchers, which provides supplementary theoretical evidence for the practice of financial reform aiming at accelerating economic development.The theory of the most suitable financial structure, proposed by Prof. Lin Yi-fu in 2006, which is quite different from the usual financial reform approach, either bank-dominated or market-dominated, on the perspective of improving the operation efficiency of the whole financial system. It stresses that the financial system should closely relate to the economy, and thus it can make the best contribution only when the interacting relationship between economic development and financial development is adjusted to the most suitable state.This paper proves that with the economy developing, the financial factors play a more important role in our economy through the empirical tests based on the data of the whole nation and thirty provinces and cities. Meanwhile, it shows that the more developed the region is, the more positive role its financial factors play in regional economy. In the Granger Cause Test based on the data of typical developed regions, we use the financing structure index to describe the change of the whole financial structure. The result testifies that the ratio between the percentage of indirect financing quantum and regional GDP growth rate has significant influence on its average GDP, which indicates that there exists an optimal elasticity coefficient corresponding to the stage of the region's economic and financial development. This is what we called the most suitable financing structure. According to this index, we suggest that more direct financing activities should be allowed in those undeveloped regions while diversifications of indirect financing should be welcome in those developed regions, so that the overall economy can develop harmoniously.Generally speaking, this paper includes four major parts: 1.Review of theories and empirical tests of economic development and financial development (including regional theories and tests); 2.Discussion on internal mechanism between (regional) Finance Development and Economy Development; 3.Empirical tests on China's present regional finance and economy related sample data on the base of ratiocinative analysis of intrinsic model of finance development and rising economy; 4.0n the base of theoretic and demonstrational analysis, we made some reform suggestions related to China's development of economy.