The Effectiveness Of The Chinese Stock Market On Economic Growth: Theory And Empirical Analysis

In recent years, the development of some foreign stock markets has increasingly had a significant effect on the economic growth and gained more and more attentions. In China, the stock market also became a key factor to the economic reform. So the main topic of this paper is to analyze whether the Chinese stock market has contributed a lot to the economic growth.Firstly, through the functional perspective of financial intermediation theory and the economic growth theory, this paper clarifies that the well-developed stock market can accelerate the economic growth in theory, that is to say, the stock market can expedite technological innovation, capital accumulation, the division of labor and so on, while these factors can boost the economic growth.Secondly, the paper focuses on the relations between Chinese stock market development and the savings and also the monetary policy. The empirical analysis shows that the scale and liquidity of the Chinese stock market really correlate with the change of the savings. From the long run, the enlargement of the Chinese stock market scale will redound to the increasing of savings and the liquidity of stock market has visible effect on the distribution of savings, and especially during the short period, the vibrancy of stock exchange affects the saving behavior both of the existing and the potential investors. Furthermore, the development of stock market has already affected money demand, interest rate, money market and so on, which makes some challenges to the conduct and implement of monetary policy. In a word, the development of the stock market has greatly affected many important economic variables that contribute to the economic growth. However, through the cointegration test, this paper finds that the effect of stock market on the economic growth is not so outstanding in the light of whether the scale or the liquidity of the stock market. While on the contrary, the development of bank system, denoted by savings deposits, has remarkable effect on the economic growth.Finally, the paper explains the results of the empirical analysis and clarifies why the effect of Chinese stock market on the economic growth is not so outstanding. In the end, the paper makes some suggestion based on the above analysis.