The Growth Effect Of Medium And Small-sized Banks' Development

Finance-growth nexus is a widely explored topic in the literature of development economics.Most traditional theories of financial development only care about the role of whole financial system to growth.However,whether financial system structure is important for economic development and growth is still in heated dispute and controversial.This paper intends to theoretically and empirically clarify the path through which micro small banks affect China's regional macroeconomic growth and the specific role of government to this affection,on the theoretical perspective of optimal financial structure from New Structural Economics.This framework absorbs Heckscher-Ohlin Theory into the field of development economics and goes deep into the banking system,concerning the division between different scale of banks and their relationships with real economy.We argue that it will promote long-run economic growth and development if financial structure matches the financial service demand from comparative advantaged enterprises in real economy then financial system fully comes true its functions,during the development of medium and small-sized banks(MSBs).Further more,banking system reforming,especially state-owned banks(SOBs)helps for MSBs' development,to some extent.Moreover,the development of MSBs strengthens the movement of current financial structure towards optimal path,stimulating the generation and development of medium and small-sized enterprises(MSEs).On the basis of this,using the recent difference general method of moments of dynamic panel techniques and instrumental variables procedure and analyzing data of 29 provinces from 1985 to 2014,the empirical results are quite prevailing:the upgrading of MSBs' size coordinates the development of MSEs in labor-intensive industries,altogether positively and significantly associating with long-run economic growth and development,a explanation from another perspective and methodology.What's more,this result holds irrespective of control variables,sub-sample regression and measurement changes.Regionally speaking,in regions with relatively higher labor-intensity,faster marketization and larger scale of small enterprises,the positive effect of MSBs is stronger and more significant.In addition,the reforming of banking system,especially SOBs helps significantly account for the acceleration of small banks' scale and intensifies the positive effect of MSBs.At the same time,the enhancement of small banks enhances MSEs' development.Altogether,these findings suggest that government-launched SOBs' reforms can boost small banks' booming,then broaden credit channel and alleviate credit constraints to MSEs,altogether accelerating regional long-run economic growth and development in China.Simultaneously,these findings provide empirical support for argument between government intervention in the theory of structuralism and neoclassicism,well explain the theoretical and practical meaning of policies such as promoting the establishment of privately-owned banks,increasing the share of loan attained by MSEs,and help us understand the critical role of small banks in transition economies at microcosmic angle of view.