An Empirical Study On The Financial Development And Economic Growth Efficiency In Underdeveloped Areas

It’s a distinctive feature of China’s economic development that regionaleconomic and financial development is unbalanced. For example, economicefifciency and financial development in eastern developed areas of China ismuch better than that of western underdeveloped areas. Meanwhile，China,including most provinces, have experienced rapid growth in recent years but atexpensive of consuming environment, natural resources and energy. Thoughsuch high capital investments have promoted economic growth, thisdevelopment pattern can be clarified as extensive economy as well asunsustainable development. Gansu Province, one of the western areas of China,has also experienced high growth, but its economic efficiency is very poorfacing such problems as environmental capacity, resource constraints andenergy bottleneck constraints. It’s urgent for it to transform extensive economicdevelopment to intensive development. Due to the important role of financialdevelopment in modern society and regional economic development, it’sessential to research the relationship between financial development andeconomic eiffciency, especially in western areas.By summing up the experience and knowledge of the theoretical andempirical aspects of economic growth and financial development, it is necessaryto choose a reasonable form of the production function with a reasonablymeasurement index of financial development. At the same time, to reduce errors,other factors affecting economic efficiency are taken into account, and thenadded into the eiffciency equation.Random variable coefifcient model is applied to analyze the differences ofifnancial development indicators among different cities.By testing the form of production function and the model, transcendentallogarithmic production function is adopted to set up the stochastic frontierproduction function which is suitable for Gansu Province. By using Frontier4.1sotfware to regress, significant differences of financial development amongdifferent cities in Gansu are found. The role of financial on economic efficiencyshows ladder-type distribution, implying that financial sectors develop well indeveloped cities, and which can be defined as financial need-based whereasthose develop poor in underdeveloped cities can be defined as financial supply type. Those effects are not distinct in moderately developed regions. The reasonis that differences in economic development lead to an imbalance of financialdevelopment. Thus financial sectors mismatch economic circumstances. Gansuprovince which mainly depends on agriculture is now in a transition toindustiral economy. Owing to the restriction on location, resources andtechnology, its industry and agriculture have developed much slowly. Moreover,financial institutions of Gansu mainly rely on banks, which are disadvantage toits economic development. The finding also indicates that financial developmentin underdeveloped areas easily catches in a vicious cycle.