A Theoretical And Empirical Research On The Effect Of Financial Depth And Financial Width On Economic Growth

Because of the difference of our country economic and financial development, it has important significance to study the relationship between regional financial development and economic growth. Financial development includes two dimensions: financial depth and financial width. Most scholars focus on the research of relationship between financial development and economic growth, and giving the conclusion that regional financial development plays a significant role in regional economic growth. While how much do financial depth, financial width have an effect on economic growth; it worthes our to have a deep research on whether it exist of optimal financial scale which in match of the regional economic growth.According to the conceptual framework of the world bank, we make an accurate definition to the financial depth and width form connotation and extension; Based on financial structure theory, financial cost theory and regional financial theory we propose the optimal dimension value of the financial depth and width, also give the hypothesis of the effect of financial depth and width on the economic growth; Applying dynamic panel data of 31 provinces in China from 2004 to 2013, this paper studies the effect of financial depth and width on economic growth, respectively, from the empirical level and regional level; Compares economic growth in the eastern and western regions; Finally coming to the conclusion that the financial depth, financial width have the optimal value. Combined with the conclusion of the study we make some related suggestions on the tendency of financial development.The results show that: from whole perspective, in terms of financial depth, the effect of monetization on economic growth is divided into three stages, which presents “N” type curve; the effect of securitization and insurance depth on economic growth is divided into two stages, which presents inverted “U” type curve which first increased and then decreased; in terms of financial width, we find the same results, that is, finance professionals, insurance density present “N” type curve on economic growth respectively, while the relationship between the density of financial institutions and economic growth is positive and linear. From the regional perspective, there are differences between regional financial depth, financial breadth and regional economic growth; In the eastern region, financial depth and economic growth is fluctuating downward trend, financial width and economic growth is fluctuating upward trend; In the central region, the curve between financial depth, financial width and economic growth decreases linearly; In the western region, the curve between financial depth, financial width and economic growth in a fluctuated downward trend.The results suggest that the impact of financial depth and width on economic growth is not consistent. In other words, in different stages, different dimensions of financial development can promote economic growth or cause the opposite effect. The implication of the study is that to maintain moderate scale of financial depth and width is the key to promote economic growth in China.