Financial Development, Ironing Or Enlargement Of Economic Fluctuations

Since our society moves into merchandise economy, economic fluctuations have been "daunting", especially in recent centuries. Along with economic growth is the financial development, which provides another channel for the spreading of growth volatility. The dissertation provides these channels in detail. By doing empirical studies on China with panel data at the level of province, we find that the effect is non-linear: during the stage in which finance (system) is underdeveloped, finance may act as "buffer" for the economy, facing downward or upward fluctuation; when finance deepens and develops, the "accelerator" effect dominates. We also filter the short-term disturbance from the financial development (index), and find that the results remain robust with this method. By introducing interaction terms between financial development and economic variables including bank structure, short-term credit fluctuations, trade, and FDI, it furthers the discussion on the effect of financial development on growth volatility.