An Empirical Test Of The Cycle Relationship Between China’s Financial Development And Economic Growth

So far, in the last three decades, the finance and economy system of the world has experienced a series of periodic financial and economic crisis, such as the Latin American financial crisis in late 1980 s, the Asian financial crisis in 1997, world financial crisis in 2008 and European sovereign debt crisis in 2009.These facts highlight the deep impact and challenges of finance to economy, inspire people to in-depth study of cycle correlation of finance and economic. However, current research is mainly confined to study the cycle relationship between the finance and economic from the financial growth cycle perspective, and lack some exploration from the perspective of financial development cycle. Therefore, from the perspective of financial development cycle, the paper attempts to empirically analysis the cycle correlation of Chinese financial development and economic growth.In China, the reason why few people interested in the study, not because it has no meaning and value, but because China’s economic statistics, especially financial statistics development lags behind, in recent years there has monthly data, and before then most of the data is annual. This leads to the sample size of the existing economic data, particularly financial data that can be directly used is very small, and thus not reach at least 200 sample size requirements in cycle analysis. So, I have spent three months dedicated time to collect and organize a large number of economic and financial data, and made the sample data needed to advance to the period January 1992, so that the sample size can be used to achieve 270. In support of strong data, from the financial scale, financial structure and financial efficiency,the paper measures the financial development of Chinese financial system which include financial intermediaries, financial market, insurance agencies and the entire financial system, while it also measures the economic growth. The financial scale measure is from two dimensions of the financial depth and width; financial structure measure includes the structure of the financial system, financial markets, financial assets and financing structure measure; and financial efficiency also contains the microscopic, intermediate and macro financial efficiency. Meanwhile, the paper alsodo a comparative study of the finance development between China and the world’s developed countries and moderately developed countries, through the analysis find that China’s financial development is relatively backward, and disproportionate with Chinese national economy status in the world. About the reason, I think it is mainly caused by the low efficiency of financial intermediation monopoly to financial development.Based on the comprehensive and integrated system of measure results of financial development and economic growth, the paper extracts common components of the financial scale expansion, financial structure readjustment and financial efficiency change, constructs the financial development index by using the principal component analysis method, then uses wavelet transform method to decompose the financial development index and the indicators of economic growth into four sequences of short, medium, long, and the whole cycle. Based on this, in consideration of the effects of the control variables, the paper uses the Granger causality test, cross spectrum and VAR to confirm each other, empirically tests the existence, lead and lag relationship between the financial development and economic growth cycle as well as the sign and size of the influence coefficient. Empirical results indicate that by using the granger casualty test method, financial development and economic growth are a two-way causal relationship in the short, medium, long,and the whole cycle; by using cross spectrum analysis method, financial development lags behind economic growth in the short and long cycle series, lead slightly in the median and whole cycle series. The VAR model method tells that financial development and economic growth interact significantly, and financial development has a significant positive impact on economic growth in the short and median cycle series as well as a significant negative impact in the long and whole cycle series; Meantime, economic growth has a significant positive impact on financial development in the short and long cycle series as well as a significant negative impact in the medium and whole cycle series. Aiming at the inconsistent relationship between financial development and economic growth, we suggest balancing the development of financial markets in different maturities and balancing the allocation of economic growth on different term financing demand.