The Theory And Empirical Analysis On The Relation Between Stock Market And Economic Growth

Financial market play significant role during 1978——2008 when economic reformand opening were implemented in China. However, there are capital and labor surplus behind the economic miracle as a developing country, which involve in financial development. Bank industries have achieved better governance structure after several reforms. There are many fluctuations in the stock market which relate weakly to sustained and rapid real economic. The function of stock market on economic growth is a still question which needs answer.Because stock market play vital role on economic growth, we set a two sector model which contain producing and finance based on economic growth framework. The model concludes that finance sector can boost saving by allocate resource efficiently. In order to test the theory, we establish multi-variable VAR model by choosing GDP, STV(a total market value of indicators) and STO ( stock market transactions) and analyze the influence by Johansen co integration test, ECM model, Granger causality test and impulse response analysis and other methods of quantitative analysis, in the short term, long-term causal relations. We find that the stock market development promote economic growth significantly in the long run. But it has very limited impact in the short-term. By the Granger causality test we get the stock market and economic growth there is only a weak relationship. The conclusion from the impulse response analysis is similar to the above conclusion. But on the whole stock market for Chinese economic growth is still limited, mainly because with the state-owned enterprise reform and public finance system. These two factors have led to the development of Chinese stock market position is different from the developed countries, and therefore the process of development in the stock market involve inappropriate policy interventions which limited the function of the stock market. In the end, we set corresponding policy recommendations based on theoretical and empirical analysis conclusions.