Financial Development And Technological Progress In China: Theoretical And Empirical Study

Technological Progress is the main source of long-run economic growth, while finance is the core of modern economy. Connecting financial development and technological progress will greatly enhance the speed and efficiency of transforming scientific and technological achievements. In view of the constraints of environmental and resources, it is necessary to rely on technological progress and financial development to make sustainable growth. Along with deepening of social economic development, financial system is of vital importance for technological progress. With a view to promote technology progress and the reconstruction of function oriented financial system, this dissertation expounds on the theoretic questions such as the technological progress oriented functions of financial system, mechanism and system design.This dissertation uses the theories of financial development and economic growth to make both theoretical and empirical investigation on the functions and mechanism how financial system affects technological progress, makes suggestions on the financial system reconstruction based on the expansion and enhancement of function on technological progress.Firstly, this dissertation analyzes the characters of technological progress and its need for finance services. The coupling of subject's demand and technology is the dynamics of technological progress. For the great uncertainty, high-risky, information asymmetry, different enterprises in stage with different risks and different demand for capital, common investors won't invest on the technological progress projects. So it is of great need for the financial system to provide financing service to promote technological progress.Secondly, this dissertation constructs a theory framework to analyze the relation between financial development and technological progress. Considering the functional role of producing information and allocating capital, risk amelioration, monitoring firms and exerting corporate governance, the paper constructs a functional mechanism that financial system affects technological progress and innovation. This dissertation also sheds lights on financial system, foreign direct investment and technological progress in economic growth model, to make clear how financial system affects technological progress by affecting FDI spillover and human capital accumulation. Based on the research of Alfaro(2003),Chou and Chin(2001),this paper constructs the macro-mechanism that financial system affects technological progress and innovation. And the conclusions of this framework are:the higher the efficiency of the financial system in the host country is, more FDI spillover, highly efficient financial system would affiliate the establishment of new local firms, and hence the absorption of the technology spillover from foreign firms. Financial system affects human capital accumulation by mobilizing savings, releasing credit constraints, risk amelioration.Based on the theoretical mechanism, this dissertation applies to investigate Chinese financial development and technological progress since 1978. Using total factor productivity method and the panel data since 1978, this dissertation measures the technological progress index in China and makes empirical study on how financial system affects technological progress. The conclusion of the empirical study is though the scale efficiency of finance system is improved, more and more FDI flows into China, great progress in technology, the financial system is malfunctioned in some degree, and prevents the FDI spillover and human capital accumulation from promoting technological progress.To conclude, this dissertation suggests that it is necessary to adjust and optimize the financial system, with the expansion and enhancement of the functional role of technological progress. Policies should be made to:improve and optimize the financial ecosystem to technological progress; multi-layered capital markets, trading system and exchanges, reconstruct the functions of financial system; market-oriented financial intermediaries including formal and informal financial networks; financial innovation products concerning technological progress such as technology innovation investment funds, technological progress loans, technological progress bonds and other financial derivatives.