An Empirical Study Of Financial Development In Inner Mongolia On The Upgrading Of Industrial Structure

Finance is the adhesive of modern economy. At the same time, it is the blood circulatory system of the economy. Compared to the eastern regions of China,the current industrial structure still seems very backward in Inner Mongolia. The internal development of three major industries is also very uneven. So it is important to study the impact of financial development on the upgrading of industrial structure and to detect financial problems in Inner Mongolia until we find the right medicine, so that it will better promote Inner Mongolia’s industries. And it will have long-term significance to the economy of Inner Mongolia.This paper is based on these theories, such as financial structure theory, financial repression and financial deepening theory, as well as the financial constraints and Petty-Clark Principle. Firstly, by using the normative analysis method, we explore the role of financial development for industrial structure, combined with financial development and industrial structure characteristics over the years in Inner Mongolia. Secondly, by using the empirical analysis method, we establish two VAR models. One only contains variables of financial development and industrial structure.What’s more, the other one adds disturbances. Using impulse response function and variance decomposition, we compare the various elements’ contribution rate to industrial structure under two states. The empirical results show that the model which contains only the financial development and industrial structure related variables tends to overestimate the contribution of financial development to the industrial structure. Financing rate has a stable long-term role for the upgrading of industrial structure; saving investment rate has effection on industrial upgrading structure by long-term volatility trend; banking service’s density promotes industrial structure by the way which fixes a certain value around. At last, the government should improve the local financial system, strengthen local financial institutions, and so on.