The Nonlinear Correlation Of Institutional Quality,financial Development And Economic Growth

As a key link in the modern economic system,finance plays an important role in the rational allocation of resources and the effective adjustment of macro-economy.China's reform has entered a critical period and a deep water zone.It has greatly promoted the optimization and upgrading of the financial structure in different provinces and the improvement of the economic development level by straightening out the correlation mechanism between the financial development level and economic growth,deepening the reform of the financial system and promoting the optimization of the financial structure.There are many arguments about the relationship between financial development level and economic growth in the existing literature.One of the contributions of this paper is to prove the non-linear relationship between financial development and economic growth in China's current economic system.The new institutional economics school believes that the effective development of financial functions cannot be separated from the support of the system.A well-structured and well-functioning financial system can effectively reduce adverse selection and moral hazard behaviors,reduce information and transaction costs,increase savings rate and savings conversion rate,optimize investment decisions,promote technological innovation and promote orderly economic growth only if it is rooted in well-developed institutional quality.The development degree of institutional quality directly affects the operating efficiency of the financial system,such as resource allocation,information disclosure,property rights protection,savings and investment conversion rate,investor rights protection and contract execution,and thus affects the promoting effect of financial development on economic growth.The second contribution of this paper is to investigate the threshold effect of institutional quality between the level of financial development and the level of economic growth.Based on the provincial panel data from 2008 to 2017,this paper investigates the nonlinear correlation between China's financial development level and economic growth with institutional quality as the threshold variable.This paper consists of five parts:the first part introduces in detail the background and practical significance of the study on institutional quality,the non-linear relationship between financial development and economic growth,and then discusses the research methods,main contents and the innovation and shortcomings of the paper.The second part is the literature review,divided into domestic and foreign parts.The former mainly summarizes the research results of domestic scholars on the influence path and mechanism of financial development on economic growth,the role of institutional quality in this influence path and mechanism,and the nonlinear correlation that scholars have paid attention to in recent years.The foreign literature mainly summarizes the development history of financial theory and recent researchers' beneficial exploration of the relationship between financial development and economic growth.The third part is the theoretical basis and model hypothesis.Firstly,the popular theories of economic growth and financial development are expounded respectively,and then the mechanism of financial development on economic growth is studied,as well as the institutional quality of how to better play the financial function,promote capital accumulation and technological progress,so as to promote economic growth.Then two hypotheses are proposed:first,there is a nonlinear relationship between financial development and economic growth;Second,the threshold effect of institutional quality exists between financial development and economic growth.The fourth part is the empirical part of this paper,including chapter 4 and chapter 5,which introduces the samples,the selection of variables and data sources,as well as the threshold model setting.The simple least square method and the institutional quality threshold model were used to empirically test the two hypotheses,and the regression results confirmed the correctness of the hypotheses.Then,the proxy index of institutional quality was replaced for the robustness test,which further strengthened the persuasion of the institutional quality threshold effect between financial development and economic growth.The fifth part is the research conclusion and countermeasures.Firstly,the regression results are analyzed in detail,and some targeted policy Suggestions are given from how to realize the coordinated development of real economy and virtual economy,and how to improve the quality of government,rule of law and credibility.The innovation of this paper mainly lies in expanding the working mechanism of financial development to economic growth into five channels:capital accumulation,technological progress,resource allocation,industrial upgrading and foreign trade,and integrating institutional quality into the logical framework of financial development and economic growth from three dimensions of government,rule of law and reputation.The disadvantages mainly lie in the small time span and the selection of financial development level and threshold variable proxy index may not be optimal.The conclusions of this paper are as follows:(1)financial development has a non-linear effect on economic growth.(2)institutional quality threshold effect exists between financial development and economic growth.China is in a critical period of economic transition and industrial upgrading,and the higher institutional quality of development contributes to the promotion of financial development on economic growth.Institutional quality can be divided into government quality,rule of law quality and credibility quality,so we can improve institutional quality from these three aspects.We will improve the system for assessing officials,raise the level of government governance,further unleash the vitality of the market,let the market play a decisive role in the allocation of resources,reduce the mismatch of human resources,and promote local government officials to focus on high-quality economic development instead of high-speed economic growth,so as to maintain long-term sustainable economic development.To strengthen the efficiency of law enforcement,to create a favorable legal environment,and to strengthen the protection of the private property rights,investment rights and contract enforcement of investors and right holders;Improve the construction of credit system,ease the financing constraints of enterprises,and provide stable financial support for enterprises to carry out long-term,high-risk and slow technological innovation projects,so as to promote technological progress and economic growth.