Anti-poverty Effect Of Financial Development In China

Poverty has always been of great concern around the world. Poverty alleviation can importantly measure the performance of a country's development. As a developing country, China pays more attention to the problem of poverty. According to the status and characteristics of the poverty problem in China, government comes up with solution to solve the agriculture issues, such as developing agriculture, building new countryside and increasing farmers'income, for getting rid of urban-rural dual structure and realizing the integration of urban and rural areas. Since China's reform and opening up, the economy is growing fast and the work of poverty alleviation has made a great achievement. World Bank data shows that from 1981 to 2014, poverty rate in China has dropped from 43% to 8.5%, the cumulative reduction of poor people is 660 million. However, as the largest developing country in the world, China still face serious poverty problems because of historical factors, geographical environment, resources distribution and long-term urban-rural dual structure. According to the National Bureau of Statistic, China still has 70.17 million poor people,12 million impoverished village, and 832 poor counties and poverty-stricken areas where national poverty development is focusing on. Therefore, the research on the poverty problem in China is of great significance to the work of poverty alleviation.As the core of present economic development, finance has influenced every aspect of life. After ten years of financial reform, financial development in China has made great progress both in scale and in operational efficiency. Now in the national economy, finance is playing an indispensable role, which optimizing the allocation of funds, directing capital into more efficient project, increasing the utilization of financial source, at the same time, also reflecting and supervising the economic development as a barometer. Anti-poverty effect of financial development gradually is concerned and researched by academic. Then whether can financial development alleviate poverty? The answer is obvious. According to modern financial theory, financial development can effectively relieve poverty by promoting economic growth and increasing national income. In recent years, the reform of China's finance has made a breakthrough and finance has been useful tool in anti-poverty by the government and public. The 18th National Congress of the Communist Party of China makes clear that finance plays an important role in helping the poor to get rid of poverty and promoting regional economic and social sustainable development. In April 2014, people's bank of china introduced some guidance concerning the comprehensive financial services for poverty alleviation to insure that financial development is good for poverty alleviation. It is worth considering, however, to which way finance can benefit the poor and what extent financial development promotes poverty reduction. The solution of these problems can provide a better theoretical support for the financial anti-poverty policy and may come up with a new way for policy makers to lessen poverty. Therefore, I choose anti-poverty effect of financial development as my research topic.At first, this paper systematically reviews literature about the relationship between financial development and poverty reduction at home and abroad. Secondly combining the actual situation in our country, the paper analyzes the development of finance, poverty problem and financial anti-poverty work. Then on the basis of theoretical and status analysis about financial poverty-aid, I study the influence of the financial development on poverty from two aspects of direct and indirect effects, using time series data from 1987 to 2014 in China. Variables of financial development, economic growth and income distribution are selected in this paper. Combining financial scale, financial efficiency and financial volatility measure the level of financial development. The indicator of financial scale is the ratio of loans to GDP, financial efficiency indicator is the ratio of loans to deposits and financial volatility variable is the absolute value of the volatile components of financial scale growth obtained by HP filter method. Meanwhile per-capita consumption level is the indicator of poverty alleviation and Per Capita GDP indicate is the indicator of economic growth and ratio of per capita disposable income of urban residents to per capita net income of rural residents is chosen as an indicator of income distribution. In addition to the financial volatility, the paper takes logarithm of other variables to reduce the heteroscedasticity and large amplitude of variable. Through unit root test, it is found that variables are not non-reposeful time series and they are integrated of order 1. Then using cointegration test to analyze long-term equilibrium relationship and building VEC model to study the short-term interactive relations. At the same time, take first order difference of variables to get the growth rate of the variables to establish VAR model and carry on impulse response and variance decomposition analysis. The research results show that financial development in China not only indirectly benefit the poor through economic growth and income distribution effect effectively, but also reduces poverty directly by the expansion of financial scale. But currently the improvement of financial efficiency, meaning higher ratio of deposits into loans, doesn't benefit poverty reduction which reflects current situation that loan funds mainly flow into high-yield project areas such as city and the poor areas can't attract funds to satisfy their need. Meanwhile financial fluctuations offset some benefits of financial development for poverty alleviation. Besides the ratio of urban and rural income within a reasonable range is advantageous to the per capita consumption level and the reduction of poverty. The research results show that financial development in China not only indirectly benefit the poor through economic growth and income distribution effect effectively, but also reduces poverty directly by the expansion of financial scale. But currently the improvement of financial efficiency, meaning higher ratio of deposits into loans, doesn't benefit poverty reduction which reflects current situation that loan funds mainly flow into high-yield project areas such as city and the poor areas can't attract funds to satisfy their need. Meanwhile financial fluctuations offset some benefits of financial development for poverty alleviation. Besides the ratio of urban and rural income within a reasonable range is advantageous to the per capita consumption level and the reduction of poverty. In order to have a comprehensive analysis of anti-poverty effect of financial development in China, this paper studys not only using national time series data from 1978-2014 but also using Sichuan province time series data from 1978-2014. This paper chooses Sichuan province as the object of study to analyze finance anti-poverty effect because as the key provinces of financial poverty alleviation, Sichuan province has a large number of poor people, a wide range of poor area and serious poverty level. Therefore it is difficult to alleviate poverty there. The rapid development of economy and finance in Sichuan province benefit the real economy and the work of poor-supporting financing is relatively mature which lays a solid foundation for the theoretical research. The result is the same as the whole nation.The innovation of this paper is reflected in three aspects:firstly, using time series data from 1978 to 2014 which covering 37 years of reform and opening up. Secondly, measuring the level of financial development using the indicator of scale, efficiency and stability in line with the real situation of Chinese financial development. Thirdly, adopting relative poverty index. But there are also some shortcomings mainly the following two aspects:(1) for the limited access to micro data, this paper doesn't analysis financial development of anti-poverty effect from the microscopic angle. (2) This paper studies without the non-formal finance which is a useful supplement to the formal finance.