Analysis On Rural Financial Development’s Influence On Rural Residents’ Consumption Of Hunan Province

As a major agriculture province in China, the relationship among Agriculture, Villages and Farmers (hereby referred to as "AVF") is the fundamental factor to Hunan’s modernization and economic development. The core of the "AVF" issue is on the farmers whose key problem is a relatively low income and the slow improvement of their living conditions. As one of the three horses that stimulate the economy, consumption is just as important in the rural areas as it is in the city. To solve the "AVF" issue and stimulate the economic development of the rural area, policies and guidelines have to be based on the rural consumer market and to encourage consumption.Along with the whole country’s rapid economic development over the last decade, the consumption of Hunan’s rural residents has improved not only on the gross amount, but also on the structure. This is partly due to the rapid development of rural finance. The good news is that ever since the start of the constant reform on the rural financial system, Hunan’s rural financial development is improving steadily and the number of financial institutions is also increasing, which could provide not only more sources of funding, but also an "umbrella" for the rural residents since it lowers the saving rate and increases the residents’income and consumption to a certain extent. Based on Hunan’s related data from the year 1985 to 2013, and a series of researches and analysis-the correlation analysis, ADF test, Granger causal relation test and impulse response function analysis, the hypothesis is confirmed that the financial development in Hunan’s rural area does have an influence on its consumption and its consumption structure (measured in Engel’s Coefficient). Through regression analysis, the correlation relationship between these two is further proved. A conclusion is reached after empirical analysis:there is a long-term, steady equilibrium relationship in the rural area among its financial development, its consumption and its consumption structure; the former has brought positive changes to the latter two to a certain extent, but the influence varies among index.Although the rural financial development in Hunan has improved the residents’ consumption to a certain extent, there is still some problems existed, insufficient financial supply, for instance. Other issues would be the disconnection between the financial service and the actual demand, the irregular financial services and the serious rural cash outflow. Because of the above mentioned issues, rural finance falls short on its purpose to promote the rural consumption, and to make it worse, it could become the obstacle in the way of the development of rural consumption. To address this situation, starting from Hunan’s current situation, after sufficient observation of Hunan’s rural residents’ consumption demand and characteristics and in-depth study on the issues existed in Hunan’s rural financial development and their causing reasons, this article proposed to motivate the rural consumption from three aspects:to optimize the rural financial system, to accelerate the financial innovation and to improve the financial environment.