The Existence And Conversion Of Multiple Equilibrium Problems Of China’s Financial Development And Economic Growth

The relationship between financial development and economic growth is alwaysa hot research topic. Although scholars research this problem from various angles, theresearch has not reached a unanimous conclusion. but research has not reached thesame conclusion. The existence of multiple equilibrium problems between financialdevelopment and economic growth is important, but the research is relatively little.According to judgment of the relationship between financial development andeconomic growth, we bases on the quarterly data of1978-2012, this paper uses asmooth transition autoregressive (STAR) model to study multiple equilibriumproblems between financial development and economic growth for the first time. Thispaper use three dimensions to demonstrate financial development, they are financialintermediaries, financial deepening and financial efficiency to revalidate the multipleequilibrium problem of China’s financial development and economic growth.In this paper firstly I have a review of the relative literature and theories bothin domestic and abroad. Then I find that there are some inadequacies of theresearch literature. Combined with the actual relationship between financialdevelopment and economic growth of China, I propose two assumptions, they areas follows: Is that multiple equilibrium problems between financial developmentand economic growth existed in China? If so, under what circumstances, it canachieve low-level equilibrium, and under what circumstances, it can achievehigh-levels equilibrium. To solve these problems I select three indicators tocharacterize the financial development, and I select the real GDP to characterizethe economic growth. By constructing three STAR models, I try to explain themultiple equilibrium problems between financial development and economicgrowth. After that, I come to the conclusions as follows:(1) there are multipleequilibrium problems between financial development and economic growth inChina, and this phenomenon has transition phase sensitivity.(2) China is in arelative low financial development and low economic growth, that is low-levelequilibrium in1992; and China is in a relative high financial development and high economic growth, that is high-level equilibrium in1996.Finally, this paper explains the economic meaning of STAR models. And fromthe aspects of government, corporations and financial systems, this paper gives somesuggestions. Meanwhile, this paper points out the inadequacies of the present studyand the future research work.