A Study On The Impact Of Financial Deepening On Economic Growth

This paper firstly analyzes the characteristic of economic development, both inChina and the United States. This paper mainly analyzes the economy of China in twodifferent periods, which separated by the time point that China adopted the reform andopening policy. Meanwhile, it analyzes the economy of the United States in threedifferent periods separated by the time that financial system changed the businessmodel. It shows that finance has great importance to economic growth in both Chinaand the United States, which inspires this paper of the relationship between financeand economic growth. There’s no conclusion about the influence of finance toeconomic growth after reviewing the literature related. On that basis, this paper makesa comparative analysis with China and the United State using the financial deepeningindexes in VAR model. The conclusion: financial deepening has a positive influenceto China’s economic growth, while the financial deepening level is lower than theUnited States; the United States has a high level of financial development, but theremay be too much finance, which may decrease the economic development. In theshort run, financial deepening level can increase the economic growth in both Chinaand the United States, while in the long run too much financial in a country maydecrease the economic growth badly.China may need to deepen the financial system with the help of the experience ofthe United States. During this progress, China, with characteristic practice of her own,can enjoy a development of financial industry.