Dynamic Relationship Between Financial Deepening And Economic Growth In The Process Of Interest Rate Liberalization

Our social development has entered a new era,our economy is in the crucial stage of transforming its development mode,optimizing its economic structure,and transforming its growth power.The urgent requirement to cross the threshold is to build a modernized economic system,which is also the strategic goal of China's development.Finance is the core of modern economy,the 19th CPC central committee pointed out that" deepening financial system reform,strengthening financial service capacity of real economy,and deepening market-oriented reform of interest rate and exchange rate".Facing the complex situation at home and abroad,we should always stick to the reform of socialist market economy,improve the mechanism of market-based allocation of factors,and especially improve the efficiency of capital allocation in financial system,which plays an important role in economic growth.Since 1978,China's financial depth has been continuously improving,the number and diversity of financial institutions and the diversification of financial instruments have been greatly enhanced.Especially after the interest rate liberalization reform was initiated in 1996,China's financial depth has been deepening.However,compared with developed countries,China's financial system still has a large gap in efficiency and capacity,financial market function is not sound,and the efficiency needs to be further improved.How to accelerate China's financial reform process through financial deepening,break through the obstruction points that have plagued China's economic and social development for many years.How to activate existing assets,expand investment channels and methods,improve investment efficiency,simultaneously in the process enable national wealth to maintain and increase value,also ultimately achieve high-quality economic growth.All of these require us to explore the dynamic relationship between interest rate liberalization,financial deepening and economic growth in the new context,and further discover problems and seek solutions.Most scholars generally use financial stock index,financial flow index,financial market size and structure index to measure financial deepening,but few use financial asset price to measure financial deepening.This paper studies the dynamic relationship between financial deepening and economic growth in China through theoretical and empirical studies.Interest rate liberalization index and securitisation ratio are the agent variables of financial deepening,and the year-on-year growth rate of industrial added value is the agent variable of economic growth.Using the monthly data for the period covering 1996 to 2017,firstly,the stationarity test of time series variables was carried out,and the data of selected variables were found to be stable.Then,regression and granger causality test were conducted for the correlation and causality between financial deepening and economic growth respectively.Finally,VAR model was established,and the impulse response and variance decomposition were carried out for the agent variables with Eviws10 software to explore the dynamic connection between financial deepening and economic growth.The results show that:(1)the coefficient of interest rate liberalization and stock market development index is a significant positive value,that is,financial deepening has a significant positive correlation with economic growth.Investment is still the most important factor influencing China's economic growth.Government spending has a negative but not significant impact on economic growth and inflation has a positive but not significant impact on economic growth.(2)interest rate liberalization and economic growth are granger reasons for each other.Securitization is a granger reason for economic growth,but economic growth is not a granger reason for securitization.Other factors influencing economic growth,such as capital stock growth,foreign trade,government intervention and inflation,are the granger cause of economic growth,and there is a two-way granger causality between foreign trade,government intervention and inflation and economic growth.Meanwhile,the granger causality test also shows that interest rate liberalization is the granger cause for the development of the securities market,and there exists a two-way granger causality between the growth of capital stock,foreign trade,inflation and interest rate liberalization.(3)the impulse response results show that the interest rate liberalization reform has a positive impact on economic growth,and the development of the stock market has a positive impact on economic growth in the first 15 periods,and then the positive impact gradually becomes weaker.After the 15th period,it has a negative impact on economic growth,and then it gradually becomes stable.Investment,foreign trade,government expenditure and inflation all had a positive impact on economic growth in previous periods,among which investment had the largest impact on economic growth and had a long-term positive effect.Government spending can also stimulate economic growth in the short term,which has maintained a positive impact,and gradually to the equilibrium level;Both foreign trade and inflation can promote economic growth at the early stage,and then the positive effect turns to negative effect and gradually returns to the equilibrium level.The variance decomposition results show that the disturbance of capital stock growth has the greatest impact on economic growth except for the impact of economic growth itself.It can also be seen that financial deepening also has a great impact on economic growth,with the combined contribution rate of interest rate liberalization index and securitization index reaching 9%.Moreover,with the extension of time,the contribution rate of these two indicators has a trend of increasing gradually.Therefore,we can get some policy enlightenment:we should continue to deepen the reform of interest rate liberalization and establish a market-oriented mechanism for the formation and regulation of financial asset prices.We should properly handle the relationship between financial reform and supervision,improve the multi-level capital market system,and optimize the financial structure.We will continue to pursue reform and opening-up and actively explore market-based reform of the exchange rate.