The Path Of Financial Development:Comparative Analysis Of Financial Deepening Theory And Financial Restraint Theory

It has been 40 years since Financial Development Theory developed in 1970s,but there still lacks of successful case in the course of practice to support the theory. An important manifestation of the ideological trend of economic liberalization is the liberalization in financial sector. Financial liberalization released the control of financial markets and financial activities to enhance the degree of competition,improving economic efficiency companied with instability of some countries at the same time. Through combing the development of Financial Development Theory,this paper try to figure out the historical reason and as well as the new feature of theory solving new phenomenon brought by external environment change.And this paper makes a comparative analysis of Financial Deepening Theory and Financial Restraint Theory,including core point, theoretical assumptions, logical framework and policy recommendations,also compares the financial reform practice advocated by the two theory in South Korea and Japan.Based on the review of the theory,this paper discuss the conditions, the speed and sequence of implementation of financial reform,find out that the financial constraints policy is not as the antithesis of financial deepening policy, but as a comprehensive financial deepening process in a special stage, that its essence is the transitional stage of a microscopic mechanism is not quite mature.Based on the above analysis, this paper proposes a proper path of financial development, financial repressionâ†'financial constraintsâ†'comprehensive financial deepening path, and by using principal component analysis estimates the degree of China’s financial reform and overviews of the challenges in the near future.