Develops Financial Impact On Economic Growth

Discussion on the role of development finance in economic growth has never stopped,although its history is not so long. There is some doubt of the role of development finance. Asfor the doubt, this essay illustrates the effect of development finance on economic growth fromboth qualitative and quantitative aspects, by analyzing the main methods that developmentfinance has influence on economic growth.This essay includes four parts, describing the effect of development finance on economicgrowth, with development finance throughout the essay. In part 1, it indicates the meaning ofdevelopment finance, the characteristics of quasi-public products, and the current situation ofdevelopment finance in China. In part 2, it provides the theoretical basis for the effect ofdevelopment fiancé on economic growth by introducing the theory of finance and economicgrowth and the theory of infrastructure investment and economic growth. In part 3, it proposesthe main methods of development finance on economic growth by analyzing its direct andindirect effects on economic growth, from the perspective of the function of developmentfinance: development finance — infrastructure investment — economic growth. Then, analyzethe positive effects of development finance on infrastructure investment and infrastructureinvestment on economic growth step by step according to the influence methods. Through theanalysis of methods it illustrates the propelling role of development finance on economicgrowth qualitatively. In part 4, Set up ECM model by use of the data of loan, infrastructureinvestment and GDP of Development Bank of China from the 1st quarter in 1998 to the 4thquarter in 2005 and illustrate the propelling role of development finance on economic growthquantitatively both directly and indirectly.Through the analysis of both qualitative and quantitative, this essay draws the conclusion:First of all, there are both direct (capital accumulation) and indirect (environmentalconstruction of market system) effects of development finance on economic growth. Secondly,the main method development finance has effect on economic growth directly is as follows:development finance — infrastructure investment — economic growth. Thirdly, ECM modelindicates that the positive role of development finance on economic growth is obvious.