Financial Structure, Capital Allocation Efficiency And Economic Growth

The financial structures vary a lot from country to country in the reality. It is not only a controversial academic topic but also has strong political implications regarding how to understand those differences and its relationship with economic growth. The scholar from both China and abroad believe that the financial system can promote the economic growth in the long run through increasing the accumulation of capital and improved efficiency of capital allocation, especially the latter. Therefore, this paper choose efficiency of capital allocation as the research subject, the relationship between financial structure and economic growth was investigated by comparing the efficiency of capital allocation of direct finance and indirect finance.Strictly according with the standard economics research methods, the paper follows a series way which includes raising the problems, literature review, building the interaction mechanism between variables and the establishment of appropriate econometric model for empirical analysis of the relevant samples. By this way, we get research conclusions on the relationship between financial structure, efficiency of capital allocation and economic growth.The first part is the theoretical basis, the influence mechanism concerning financial structure, efficiency of capital allocation and economic growth was analyzed in this part. We found that the effect mechanism between the financial sector and economic growth are quite different in different theory model of economic growth. In the earlier classic and new classic theory of economic growth, only through capital accumulation, can financial sector promote economic growth, while in endogenous theory of economic growth, finance can promotes economic growth through the impacts on the efficiency both in the conversion from savings to investment and the allocation efficiency. In the meanwhile, we also found that as the important institutional arrangements in the modern financial system, the direct finance represented by stock market and indirect finance represented by bank intermediaries play quite different role in fulfilling its core function which is capital allocation, therefore, the relative importance of the two financing channels effect a lot on the function realization of financial system. As for the effect of capital allocation efficacy to economic growth, is realized through industrial structure adjustment.The second part is the core of this dissertation, is composed by four logical empirical analysis. Firstly, according to the economic development levels.The sample countries are divided into two groups: OECD countries and the developing countries. This dissertation investigate the influence of financial structure on efficiency of capital allocation based on the cross-country panel data. The empirical study shows that the relationship between the financial structure and efficiency of capital allocation is insignificant in the developed economies in which its financial system is developed and market mechanism is refined; the financial structure which towards to direct finance could boost the efficient capital allocation in the developing economies which its financial infrastructure, legal system and institutional environment are on self-improvement stage.Secondly, elastic coefficient method was utilized to measure the capital allocation efficiency of China during 1990 to 2011. The Result show that the capital allocation efficiency was relative low overall, which reflect a fact that is the capital allocation efficiency is irrational in China. The main reason is the unbalance of capital allocation, which means capital flowing into the declining industries. Besides, during this period, the capital allocation efficiency of China is on unstable state, and the volatility is high. That’s due to the determining factor of the market to the capital allocation. China is still in the period of economic transition, and the financial system is very sensitive to macro-economic policy.The capital allocation efficiency of direct finance and indirect finance of China were compared in the following empirical section. The result show that the increase of the direct finance and indirect finance of China failed to brought out the increase of the efficiency of capital allocation. From the view of international experience, China should increase the direct finance and equity finance, and build multi-level domestic securities market. However, our study show that an effective financial system has to be consistent with the level of economic development, the legal system, the degree of marketization and other environmental factors in that country. The financial structure by artificial dictation is not only harmful for effective allocation of financial resource, but also make it difficult for the establishment of financial market order.Thirdly, the improvement of macro-efficiency of capital allocation is on the basis of micro-efficiency of capital allocation. All kinds of capital allocation has to be realized through the effective investment and the value added of the real economy eventually. In order to make the research more persuasive, the empirical analysis was made to examine the influence of Chines listed company to the efficiency of capital allocation, adopting individual fixed effect model and time fixed effect model. Significant negative correlations was found between the direct equity finance and the micro-efficiency of capital allocation, and the indirect finance of bank credit is ineffective.Fourthly, the empirical study on the influence of direct finance and indirect finance to the economy growth of China during the period of 1990-1011 was conducted based on the method Multivariate co-integration test. The result show that the significant effect of indirect fiancé was mainly due to the increase of bank credit proportion, meanwhile, the boost effect of direct finance to the economy growth was insignificant. The utilization efficiency of stock market is relatively low and a massive amount of scarce capital was in the inner circulation of financial system, and the money capital were not turned into real capital. All the factors above caused the serious adverse allocation of resource in stock market. Combined with the conclusions from the previous chapters, we can say that the boost effect of the financial sector to the economy growth is primarily realized through the capital accumulation instead of improving the efficiency of capital allocation. The future direction and objective of financial reform is increasing the capital quality of financial institution and financial market, and making the financial system to play an active role in allocating financial resource. Only through this way, can financial sector promote the transformation and upgrading of the industrial structure and efficient economic growth.Part 3 is the conclusion part, some policy recommendations on the future financial reform of China are provided based on the research conclusions drew by this article.