Analysis On The Input-output Relevancy And Efficiency Of Hina’s Financial Industry

Finance is the core of modern economy. Finance industry is a special serviceindustry which operates finance products. Through the market system, the financeindustry makes the input，output and optimize the allocation of social resourceamong various industry. With the development of economic globalization andfinancial integration, how to fully play the core role of finance industry and promotethe harmonious development of finance and national economy has been the focuspoint of the whole world.Since the reform and opening up, the industrial scale of China’s financial sectorhas been expanding and its international status has been rising, which has madeimportant contributions to the national economic development. However, there arestill some flaws in the industrial forms and industrial structure, the corecompetitiveness of China’s financial sector and the overall strength is still not strongenough. At present, the development level of China’s financial sector and the statusof the world’s second-largest economy is extremely incompatible, in the process oftransformation of economic growth and the pursuit of the content development, asthe core industry of national economy, the position of the financial industry in thevarious industries of the national economy, the relationship with the other industriesand the development trends, what kind of role it will play in promoting of thenational economy, what kind of changing trends in efficiency, what are the mainfactors for affecting the efficiency---all these issues are gradually concerned by thegovernment and academia. To really play the central role of the financial industry and make it an importantpillar industry of national economic growth, we must first understand the industrialcharacteristics; clarify the status and efficiency of the financial industry in thechanging trends. On the basis of full analysis on the size, structure and layout ofChina’s financial industry, according to the theory of industry correlation andefficiency, we make use of finance-related rate，contribution rate, contribution degreeand some other indexes; this paper makes an analysis on the correlation effects ofChina’s financial sector,the tertiary industries and industry segments，uses DEAmethod to measure the static efficiency and uses DEA-based Malmquist productivityindex to measure the dynamic efficiency of the financial industry. By construction ofPanel Data Model and the use of least squares analysis, this paper finds the macrofactors that will affect the changes of the total factor productivity, this will promote abetter understanding on the industry status of the financial sector and provides areference for the healthy development of the financial industry.This paper can be divided into six chapters. The details are as following:Chapter1: Introduction. It introduces the research background and significanceof this article and comments on the research status of the industry association of thefinancial industry, the efficiency of the financial sector, and the relationship betweenfinancial industry and national economic development. It also introduces theframework, the main contains and the main research methods of this paper.Chapter2: The relative theories on industrial relevance, efficiency and financialindustry. This chapter is the theoretical basis of this paper. Firstly it clarifies theconnotation and the main way of the industry association, to sort out the formationand development of the industry association theory, and describes the basic structureof the input-output tables and Leontief’s classical input-output model. Then itintroduces the meaning of efficiency, summarizes the formation and development ofefficiency theory and explains the implication and related theory of productivity. Finally, it defines the meaning and characteristics of finance industry andsummarizes the related theories on finance development.Chapter3: The size, structure and international comparison of China’s financialindustry. Firstly, it introduces the process of China’s development and summarizesthe characteristics of each stage. Then it analyzes the industrial scale, structure andlayout of China’s financial industry. This chapter selects currency depth, thecontribution rate of the financial industry, the contribution degree of the financialindustry, financial-related rate and some other economic indicators to measure thecurrent development state of the financial sector in China,analyzes thecharacteristics of the financial sector development, and its role and impact on thenational economy. Finally, it compares China’s financial industry with the majordeveloped and emerging market countries and analyzes the advantages and gaps.Chapter4: Analyze the relevancy between China’s financial industry and thethree industries. This chapter uses input-output analysis method and the1997,2002and2007input-output tables to analyze the association between China’s financialindustry and three industries. Firstly, sort out the data of three input-output tablesaccording to the research needs. Then, according to the input and output structure offinance industry, analyze the direct dependence between the financial industry andthe tertiary industries, this chapter finds that the finance industry has highestdependence on the third industry. By measuring the total consumption coefficient,the chapter finds that China’s financial industry has highest complete dependencewith the secondary industry. The financial industry has large prior pulling effect onthe secondary industry and has large backward pulling effect on itself. Intermediateinput rate and demand rate can reveal the status of financial industry in the nationaleconomy, the results show that China’s financial industry belongs to intermediateproduct type, which has low intermediate input rate; it is a high value-addedindustry and has little pulling effect on the other industries in the national economy. The industry has high intermediate demand rate and has high constraint on thedevelopment of other industries. This chapter also analyzes the ripple effect offinance industry, uses sensitivity coefficient to analyze the affected degree by otherindustries, uses influence coefficient to analyze the effect of the financial industry onother industries, uses production induced coefficient to measure the productioninduced effect of the final demand items(such as consumption, investigation, exportand so on)on financial industry, uses ultimate coefficient to measure the effect offinancial industry on the final demand (consumption, investment, exports, etc.).Wecan draw the conclusion that financial industry is a consumption-dependent industry.But China’s financial sector is still not a pillar industry, whose status and role in thenational economy is not enough.Chapter5: Association between China’s financial sector and various industrysegments. On the base of chapter4, we conduct a detailed analysis of the status androle of the financial industry in the various industries of the national economy.Firstly, this chapter analyzes the backward and forward linkages between financialindustry and other industries. By estimating the direct consumption coefficient andtotal consumption coefficient, we analyzes the backward linkage and find thatChina’s financial industry has a long industrial chain and a wide association withbackward industries, it can also pull other industries by direct and indirect demand.Direct allocation coefficient and partition coefficient reveal that China’s financialindustry has association with almost every national economic sector and it plays ageneral promoting role. Financial sector can directly and indirectly promote thedevelopment of all industries. This chapter also analyzes the ring correlation effectand the total driving effect, the results show that from1997to2007, the financialindustry has close ring direct association and total association with itself, and from2002to2007, financial industry has close ring direct association and totalassociation with transportation and warehousing, leasing and business services, itself and some other industries. By the sum of complete correlation coefficient andforward correlation coefficient, this chapter finds that the leading role of financialsector in national economic development increases year by year. In2007，thefinancial industry increased1Yuan in output value，it can bring3.186358yuan toother industries. By comparison of intermediate inputs and intermediate demand rateamong different industries, we find that the intermediate input rate of the financialindustry in2007ranked40in the various industries, intermediate demand rateranked13, which is typical intermediate product-basic industry; In2007, sensitivitycoefficient of financial industry is greater than1and ranked14, the influencecoefficient is less than1,ranked40,all these show that China’s financial industry hasweak radiation and strong constraints on the national economy; production-inducedcoefficient of consumption on financial industry ranks10, found that consumptionon the production-induced coefficient of the financial industry in2007in eachindustry ranked10in the financial sector ultimately depend on consumptioncoefficient in each industry, ranked13, indicating that the financial industry is aconsumer-dependent industries. Ultimate dependent coefficient of financial industryon consumption ranks13, which shows that financial industry belong toconsumption-dependent industry. Finally, this chapter analyzes the price rippleeffect.The results show that the price adjustment of the financial sector affectsalmost all sectors, but the degree of impact is weak, the financial industry priceraises10%, other industries’prices change less than1%. However, the financialindustry ripple effect on other industries prices presents a gradually increasing trend,the price impact curve consists with price stability platform theory, it shows thedevelopment of the financial industry is in the normal track, and it is healthy andstable on the whole.Chapter6: Analyze the input-output efficiency of China’s financial industry.The main body of China’s financial industry is the banking sector, the banking sector’s assets account for more than90%of the total financial sector’s assets andthe created added-value accounts for more than80%of the total financial industryadded value, the efficiency of the banking sector decides the overall efficiency of thefinancial industry, so this chapter analyzes the efficiency of China’s banking industry.First of all, it introduces the empirical model of this chapter, including the DEAmodel and calculation method of efficiency and Malmquist productivity index model.Secondly, it selects the appropriate input and output variables to test static efficiencyof China’s banking industry---comprehensive technical efficiency, pure technicalefficiency and scale efficiency, uses Malmquist productivity index to estimateChina’s banking industry total factor productivity (TFP) and makes convergenceanalysis by using Malmquist productivity index. Analysis shows that the staticefficiency of the banking sector is low from2001to2010,15commercial banks’average technical efficiency is0.964, there is a waste of resources, the averageannual waste of investment in resources is3.6%, the comprehensive technicalefficiency of the joint-venture commercial banks is2.92%higher than that in thestate-owned commercial banks; The average pure technical efficiency of the bankingsector is0.99and it is at a higher management level in general, the pure technicalefficiency of the state-owned commercial banks and the joint-venture commercialbanks is very close; The annual average scale efficiency of China’s banking industryis0.97, average scale efficiency of the state-owned commercial banks is0.93, theaverage scale efficiency of the joint-venture commercial banks is0.98.Bankingdynamic efficiency analysis shows that the average total factor productivity ofChina’s banking industry showed a rising trend from2001to2010, with an averageannual growth of3.4%, total factor productivity of the joint-venture commercialbanks is slightly higher than the state-owned commercial banks, the productivitygains mainly from technology progress. The total factor productivity of China’sbanking industry is in the convergence trend in the long term, the short-term total factor productivity index presents significant fluctuations, whose convergence isinstable. The chapter also constructs the Panel Data Model, uses ordinary leastsquares method to analyze the macro factors factors for affecting the industry totalfactor productivity of China’s banking industry. We can draw the followingconclusion: four macroeconomic variables are significant for the total factorproductivity, banking sector’s total factor productivity is negatively correlated withGDP growth, the CPI growth and the broad money supply growth rate and ispositively correlated with total fixed asset investment growth rate.The final part of this paper is conclusion and summary of analysis results of thewhole paper.