The Impact Of Finance Development Towards Regional Economic Development

The subprime mortgage crisis which broke out in2007, the global economiccrisis which erupted in2008and the following European debt crisis make people reviewthe functions that finance played in economic development again, which make the studyon the influence of financial development in economic development reaches a newround of the climax in the post-crisis era. Standing on the economic development patternin the world, it can be seen that the international competition has been experiencingregionalization trend gradually. Under this circumstance, the study on the influence offinancial development in economic development with the regional perspective gets itsown important theoretical significance and practical value. Considering that Zhejiangprovince is the developed coastal province with big volume of economy and finance inour country, figuring out the factors through which finance impacts economicdevelopment and to what the extent of the impact can serve as a reference for other citiesin exploring the road of finance promoting economic development.In terms of the construction of index system, the paper draws lessons from thosematured financial index system which adopted in existed references and combineswith the relevant financial and economic development theories to make a secondthinking of choosing index, then build financial index system consisted of18indexesand economic index system consisted of17indexes. On the one hand, the financialindex systems contains some regional-feature indexes related to folk finance; on theother hand, the construction of economic index system can improve the simplicityproblem of choosing index existed in the traditional study, which always using theGDP or per capita GDP to represent the economic development. On this case, thewhole index system would be more comprehensive and meets the regional feature inhigher level. In terms of the empirical analysis method, on the one hand, the paperuses the principal component analysis (PCA) to handle the financial index system,which is the same with those previous scholars, but at the same time, it creativelyadopts the PCA to conduct the analysis of the economic index system; on the other hand, it introduces the vector error correction model (VEC) to carry out the empiricalanalysis instead of the Simple Linear Regression model adopted in previous study,through which the paper will give a deeper analysis on the short and long termimpacts of financial development in economic development of Zhejiang province. Inaddition, the paper does further study on the time lag effect and extent of the effect byusing the impulse response function and variance decomposition method based on theresults of the VEC model, in the purpose of putting forward some suggestions.The empirical results revels that the influences of finance factors on thecomprehensive competitiveness of economy and the market economy vigor do existtime lag effect, that is unremarkable negative impact in short-term and outstandingpositive impact in long-term, but from the marketing rate of financial system, thebanking efficiency and the securitization rate specifically, the focal point of the impactare different. Specifically speaking, the marketing rate of financial system has thebiggest comprehensive impact in regional economic development, and the time lageffect makes the impact reach its maximum steady state after17years; the bankingefficiency also plays significant influence on economic development, especially forthe market economy vigor and the effect shows its maximum steady state18yearslater; as referring to the securitization rate, its comprehensive impacts on regionaleconomy are weak relatively when compared with the other two finance factors andthe functions mainly focus on the comprehensive competitiveness of economy, whichreach to the maximum steady state after19years. Therefore, with the purpose ofimproving economic development of Zhejiang province in financial developmentperspectives, it is necessary to focus on improving the marketing rate of financialsystem, the banking efficiency and the securitization rate, and formulate relevantpolicies or establish market mechanism, so that correctly guides the positiveimproving influence of financial development in economic development to functionand maximize.