The Impact Of Financial Development On Economic Development In The Western Region

The relationship between financial development and economic growth has been an important topic in theoretical circle .Much research has found that financial development has played important role in promoting economic growth. As a backward region, the western region needs to seek for the way of the economic boom urgently. By way of optimizing industrial structure and accelerating urbanization to reduce the regional gap and increase resident income is the current strategic focus in west. Research on the impact of financial development on promote economic development have important academic and practical significance to advance long-term strategy of western development.Based on the main task and target of western region, we choose four major indicators to measure economic development: total economic output, resident income, industrial structure and urbanization .Then, this paper combines with the financial development theories and the regional economic development theories, and elaborates the operation of financial system how to promote economic growth, to increase resident income ,to optimize industrial structure and to accelerate urbanization .Through qualitative analysis and quantitative analysis, we analyzes the achievement of western economy since western development,and compares the economic level of west with east and the national average. We find that the western region still in backwardness of economy. Meanwhile, through the study on the scale and the strcture of financial development, we find that although Financial Interrelations Ratio is high in west, but the strcture of financial development actually had lagged behind very much.We use provincial data of eleven provinces in west from 1980 to 2007, and use panel data unit root test,,the co-integration test and error correction model to analyze whether financial development can improve total economic output,resident income,industrial structure as well as the urbanization in both long and short periods. The results show that financial development can promote economic development in the long term , But in the short term ,there is negative relationship between financial development and total economic output .There is also negative relationship between financial development and resident income. There is no short term causality between financial development and the other variables of economic development. Based on the conclusions in the research above, we present certain supportive financial policies and suggestions to improve western economy.