A Study On The Role Of Financial Development In China’s Economic Growth

As the core of modern economy, finance has a significant influence on the economic growth. At this point, scholars have basically reached a consensus. However, there is still some controversy over the specific mechanism of financial development to economic growth. Some scholars believe that financial development and economic growth are a non-linear relationship, and there are also differences in the role of financial development in different countries at different time. In this paper, we have study the mechanism of financial development in China’s economic growth.Firstly, we systematically summarize and comment on the domestic and foreign scholars’theoretical and empirical literatures about the role of financial development in economic growth, so as to provide the theoretical and methods’ references for the following study.Thus, we have built an endogenous growth model to explore the mechanism financial development to economic growth. We divide financial sector into bank deposit and lending sector and financial innovation sector, and the former can accelerate the accumulation of physical capital by increasing savings-investment conversion rate, the latter could promote the production technology level through providing direct financing to technology research and development. Thus, financial development can promote economic growth through above-mentioned two channels. After that, we do numerical simulation analysis on the growth model results by using Chinese economic data, found that financial development can indeed promote economic growth, but the effects of two parts of the financial sector are not the same, which may lead to non-linearity between finance and growth.Prior to analyzing mechanism of financial development to China’s economic growth, we need a certain understanding about the situation of China’s economic growth and financial development. Therefore, this article does statistical research on the basic situation of China’s economic growth since the founding of People’s Republic of China, mainly including the total and structural and regional characteristics of China’s economic growth since1952(partly since1978), and found that China’s economy has made great achievements since the past60years (or30years) with some problems.Then, the article mainly describes the process and the status quo of China’s financial development since the reform and opening up. Meanwhile, based on summarizing economists’various measurable indicators on financial development, the author selects some indicators which appropriately reflect China’s financial development index. After that, we empirically analyze the overall characteristics and regional characteristics of China’s financial development, and the results show that Chinese financial sector has made great progress since the reform and opening up, but still needs further reforms.Based on the certain understanding about China’s economic growth and financial development, this paper focuses on nationwide impact of financial development on China’s economic growth. Because the nexus between financial development and economic growth may be nonlinear, the author empirically studies Chinese annual and quarterly data by using variable parameters of the state space model and structural vector autoregression models respectively. It is found that the effect of financial development to economic growth can be divided into two distinct phases by boundaries of1996, before1996the effects of financial development is the smaller, and the effects become larger and relatively stable after1996.After analyzing the national situation, the author focuses on the effect of financial development on China’s regional economic growth. The basic analysis method is the panel threshold model. And given the spatial agglomeration characteristics of China’s regional economic growth and financial development, the author also uses the panel threshold model combining with the space panel method to further explore the nonlinear effect of financial development. The empirical study has shown that the existence of the threshold effect in the influence of financial development on regional economic growth. In less than a certain threshold the stimulating effect of financial development is weak, while over the threshold the promoting effect of financial development becomes prominent significant.Finally, the author summarizes the basic conclusions of the paper and points out possible directions for further research in the future. According to the conclusions and policy implications inherent in the analysis, we put forward some policy measures about promoting China’s financial development and the economic growth.