The Empirical Analysis Of The Relationship Between Rural Financial Development And Rural Economic Growth

Financial is the core of modern economy, and the persistent driving force economic growth. The study about the relationship between rural financial development and rural economic growth is the popular topic in the western economic circles for a long time, so the importance of financial development is known by majority savant. Many study indicate that there is the relationship of reciprocal promotion or restriction between financial development and rural economic growth——the more perfect the financial system is, the more adaptable with economic growth the financial is, accordingly improving the efficiency of the resource disposal and promoting economic growth. In contrary, it will hinder economic growth. Surveying the achievement about the financial and economic, many are in view of nation or industry, but only few one study the rural financial development and economic growth. The reason is that the separation between village and city doesn't exist in developed country, and dual economy is the peculiar phenomenon in developing country. The rural financial is not only the important component of the financial development theory, but also it is the important content of the rural economic problem. Therefore, studying the mechanism of action which rural financial development exerts on rural economic growth is important for solving the rural development problem. Being one big agricultural country, whether there is a long-time, stable and balanced relationship between rural financial development and economic growth, what kind of causality exits between rural financial development and economic growth during the critical period when our country carries out the issues of"agriculture, rural, and farmer", and constructs a new pattern socialism country.This paper contains the two parts of both theoretical and empirical research on these issues. In the first chapter, this article expounds the rural financial theory, and tries to review and sum up the study about the relationship between financial development and economic growth, and the relationship between rural financial development and rural economic growth. Rural financial theory includes agricultural financial theory, rural financial market theory and mis-classification competitive market theory. There are many studies about financial development and economic growth abroad, and the earliest studies are Bagehot (1873), Schumpeter(1912). On the theoretical aspect, there are two standpoints——the financial architectures and financial constraints. Gurley & Goldsmith were the representatives for the financial architectures, and McKinnon & Shaw were the representatives for the financial constraints. These standpoints both considered that financial development had a significant effect on economic growth, but they didn't reveal the causality between financial and economic. Patrick (1966) on the relationship between financial development and economic growth perspective into two categories with supply-and demand; Merton (1995) and Ross (1997), Pagano (1993), King and Levine (1993) and others from different perspectives studied the channels which finance acted on economic growth. On the empirical aspect, Goldsmith started the study about the relationship between financial development and economic growth, he found that financial development and economic growth were simultaneous generally. King & Levine (1993) indicated that financial development and economic growth were positive correlative on statistics. Another hot spot is the financial development and economic growth causation analysis. Most domestic studies made use of leader techniques at that time, and combined the specificity of my national financial development, so the conclusions were more persuasive. The more representative study abroad was the one that studied the transformation of Indian bank policy during 1961-2000 by RobinBurgess & RohiniPande (2002), and the result indicated that Indian banks influenced the rural production and engaging behavior, brought on less poverty and more production. There are few theoretical studies about the relationship between rural financial development and economic growth is at home, and the representative one is the work of Li Yifu. In the empirical aspect, Xu Xiaobo & Deng Yingtao (1994)were the earliest persons those calculated the FIR index of country in China, and analyzed the correlativity between rural credit capital and rural national income; Zhang Bin was the earliest person that studied rural FIR and rural economic growth systemically, and the result indicated that domestic rural financial had acquired enormous growth; An Xiang (2004) studied the relationship between rural financial development and economic growth, but being short of the empirical proof-test of rural financial development.In the second chapter, the paper tells of the transitional course of rural financial institution firstly. Next, we sum up the rural financial systematic structure briefly. Since starting economic systematic innovation in 1979, my national rural financial system also carried through a series of innovation going with the development of the whole rural economic and financial market.So far, my nation has formed such rural financial system that includes commerce, policy, cooperation financial institutions, regular financial institutions are dominant, rural credit unions are core, irregular financial institutions are complementary. Finally, we sum up the issues existing in rural financial development.In the empirical chapter, we select RLG, RDL and RLTL variables to reflect the level of rural financial development, and adopt RPGDP to reflect rural economic growth. The swatch space is 1978-2005, data is selected from annual《China Statistic yearbook》,《New China fifty years statistic datum compile》and《China rural economic shagreen-book》. In order to lightening the effect of data's alteration, we take all variables getting logarithm. All empirical studies are finished by Eviews5.0.Firstly, we adopt ADF method to inspect stationary of the variables, the result indicates that all series are typical I(1) (unit root process)time series.And then, according to Johansen Cointegration Test, we establish a cointegration equation to represent the long-term relation of these variables. The result indicates that there is a cointegration equation between lnRPGDP and lnRDL, lnRLG, lnRLTL.Then we set up VEC model. The coefficient of lnRLTL(-1) concerning vecm is negative typically, so lnRLTL will take quick reaction when the system depart the long-term relation. However, the cofficients of lnRPGDP, lnRDL, lnRLG aren't typical statistically, so they can't do quick reaction. Synthetizing above analysis, we conclude that rural economic growth could affect rural financial development structure typically, but rural economic growth couldn't take quick reaction responding the impact of RDL, RLG, RLTL.Finally, we test the Granger Causality of the economic growth and financial development, the results indicate that lnRPGDP is the Granger cause of lnRLTL, and it has a faint impact on lnRLG, lnRDL. But all variables affecting rural financial development aren't the Granger cause of rural economic growth variable. The conclusion indicates that my national rural financial is the status of demand-obey, and it doesn't play the effect of supply-leading. The main reason is that financial constraint still exists in rural financial market. The financial constraint issue makes the rural financial market hardly form effective financial supply, and couldn't promote rural economic growth adequately.Based on above, lnRPGDP is the Granger cause of lnRLTL, and has a faint impact on lnRLG, lnRDL; but all variables affecting rural financial development aren't the Granger cause of rural economic growth variable, and lnRPGDP couldn't take quick reaction to the impacts of lnRDL, lnRLG, lnRLTL. The conclusion reflects the actuality of rural financial development basically. Based on above empirical analysis and aiming at the issues existing in rural financial market, we bring forward such suggestion lightening rural financial constraint: innovating rural financial system in existence, making rural civilian financial development canonical, perfecting rural financial market, cultivating favorable rural financial environment.