Empirical Study Of The Relationship Between Financial Deepening And Economic Growth

China’s economy has entered into new normal with the gradual deepening of market reform. In the background of new normal, financial innovations continue to emerge, financial system reform keeps deepening, financial services has been promoting industry escalation, with all of these, resulting in the further adjustment of economic structure, further acceleration of urbanization process and GDP growth will enter into a high-speed development stage which means that China’s previous double-digit super-high-speed development would be too difficult to achieve again,thus developing effective economic policies to promote economic growth at all levels of the financial systems has become the government’s top priority. Therefore,the thesis will introduce the money supply, as an important means of implementing monetary policy, to the study of the relationship between financial deepening and economic growth, so as to analyze the relationship between financial deepening and economic growth under various money supply at different levels.The thesis, focusing on the study of relations between financial deepening and economic growth, has selected 2418 data samples as study samples from 31 provinces with a time span from year 2002 to 2013, with financial deepening as explanatory variables, economic growth as the explained variable, while money supply threshold variable. The thesis tries to build a panel threshold model for financial deepening and economic growth, through which hopefully analyzes effectively the impact of money supply on financial deepening and economic relationship as well as the extent of such impact.This study shows that: A. Money supply could be explained by Double Threshold’s effect on relations between financial deepening and economic growth.The first threshold value is 0.061, the second threshold is 0.068, at 95% threshold level, first threshold’s confidence interval is [ 0.059,0.084 ], and the second threshold [ 0.029, 0.169 ]. B. At lower levels of money supply growth, high positivecorrelation exists between financial deepening and economic growth, whose impact coefficient level has passed significance test at 1% level. When the money supply growth is between threshold 0.061 and 0.068, financial deepening has a significant positive effect on economic growth, its influence coefficient is significant at the 1%level. Every 10% of financial deepening rate increase will result in 1.39% of GDP growth rate. In the case of money supply growth rate is higher than 0.068, financial deepening and economic growth are negatively related, of which empirical results however do not pass the significance test.To advance China’s financial market development and improve economic growth efficiency, the author has taken the liberty to come up with corresponding strategic suggestion which could be concluded as: the continuity and stability of monetary policy is essential to China’s financial reform strategy.