| Development finance plays a critical role in supporting China’s economic growth and transformation.According to the experience of developed countries,the degree of government control over financial resources affects the path and effect of economic growth in the country,and two types of finance systems have gradually emerged: "government-led" and "market-led." Unlike other countries,China’s economic growth model exhibits significant government involvement.Under China’s unique economic and financial institutional arrangements,government departments have strong power to dispose of resources in the allocation of various factors and have the incentive to achieve performance goals by promoting various industrial policies.The government gathers capital,talent,and other factors to fuel capital accumulation,enterprise innovation,and economic growth by building infrastructure and supporting key industries.The huge investment behavior of the government cannot be separated from a specific finance system.However,unlike the high attention received by research related to government investment regimes,there is a relative lack of academic research related to government finance regimes.In fact,in addition to on-budget fiscal instruments,the Chinese government can also influence economic performance through institutional arrangements for finance offbudget or quasi-fiscal measures.Extrabudgetary investment funds come mainly from external finance,and development finance is the main supplier of external finance.In 1994,when the reform of fiscal decentralization was launched,the Chinese government established the China Development Bank to serve the national infrastructure,basic industries and pillar industries.As a development finance bank with the sole function of development finance,China Development Bank has a "quasi-fiscal" and "quasi-central bank" function in the market.The birth of development finance solves the finance dilemma of the Chinese government’s economic growth model.It helps the government achieve its goal of developing the economy by gradually releasing the economic growth effect through organic integration with market mechanisms.Due to the influence of the trend of liberal economics,there are few theoretical researches on government-led development finance abroad.However,in view of the basic facts of development finance development in China,it has become an important issue to explore the influence of development finance on economic growth and the mechanism behind it to optimize the financial structure,give full play to the function of financial services to the development of real economy and achieve high-quality economic growth under the background of the new era.In the context of China’s financial system and development reality,this paper proposes the institutional advantages of development finance in bridging long-term public finance and analyzes the internal logic of development finance asset and liability expansion and China’s economic growth.Based on the theories of credit rationing,financial decentralization,and public goods,the mechanism of development finance’s role in driving economic growth and quality is analyzed.On this basis,the theoretical model and empirical evidence of development finance and economic growth are discussed at the macro and micro levels,respectively.Theoretically,this paper introduces development finance and public goods investment into the Ramsey growth model to solve the optimal size of development finance economic growth effect.The model assumes that investment in public goods is mainly undertaken by central and local government departments,and the government provides a national credit guarantee for debt finance by development finance institutions,and public goods projects are screened and financed through development finance institutions.The model derivation results show that development finance has a dual effect on economic growth.On the one hand,development finance provides financial support for public goods with a large investment scale and low return.The lower finance cost depresses the price of public goods so that more enterprises can enjoy the dividends of public investment-improving production efficiency.The improvement of enterprise productivity will not only increase the income of residents but also raise the interest rate of capital borrowing and further promote capital accumulation,which together forms the "crowding-in effect" of development finance on economic growth.On the other hand,by issuing bonds in the interbank market,development finance directly crowds out the funds needed for investment in the productive private sector.The lower interest rate of issuance will depress the interest rate of bank deposits,which indirectly leads to a decrease in the rate of capital accumulation,the combination of which makes development finance have a "crowding out effect" on economic growth.The coexistence of crowding-in and crowding-out effects leads to a nonlinear relationship between the impact of development finance on economic growth.That is,there is an inverted "U"-shaped relationship of optimal size.In other words,in the process of economic development,there is an optimal scale of development finance.In order to significantly enhance the "crowding-in effect" and reduce the "crowding-out effect" of China’s development finance,China has developed a special set of institutional financial arrangements-financial decentralization,which provides good financial support to achieve China’s long-term economic growth.Based on this,this paper further introduces financial decentralization variables based on the theoretical model.It assumes that public goods finance is no longer fully covered by development finance,and commercial banks also participate in public goods finance.The model solution reveals that financial decentralization from the government to the market does not directly weaken the crowding-out effect of development finance on capital in the productive sector.Still,this structural adjustment affects the deposit rates of commercial banks through the credit market thus accelerating capital accumulation.However,financial decentralization affects the price of public goods through market mechanisms.When the level of government intervention in the market for public goods decreases,the price of public goods increases,which discourages business demand for public goods and,in turn,is detrimental to economic growth.The purpose of this paper is to examine the enhancement effect of financial decentralization on development finance and the "crowding-in effect" of development finance on economic growth and then to demonstrate that appropriate decentralization is the appropriate policy for China’s economic transformation at this stage.Based on the theoretical model analysis,this paper adopts the real provincial level medium and long-term loan balance data of the China Development Bank.By constructing a dynamic panel model,we empirically test the inverted "U" shape relationship between development finance and economic growth and the impact of financial decentralization on development finance economic growth.The threshold effect of financial decentralization on the economic growth of development finance is examined.The results of the empirical analysis show that there is a significant inverted "U" shaped relationship between development finance and economic growth,and there is significant regional heterogeneity.To further investigate the effect of financial decentralization on the economic growth effect of development finance,this paper uses financial decentralization as a threshold variable based on the construction of financial decentralization indicators.The economic growth effect of development finance under different degrees of financial decentralization is investigated by using a dynamic panel threshold model through data-driven.The results of the study show that the economic growth effect of development finance becomes more and more significant as the degree of financial decentralization increases.However,when financial decentralization exceeds a certain threshold,it is not conducive to the economic growth effect of development finance.That is,there is an optimal value of the effect of financial decentralization on the economic growth effect of development finance.This paper further investigates the impact of development finance on firm innovation at the micro-level and industrial upgrading at the meso level.The results of the empirical tests on firm innovation show that development finance can significantly promote firm innovation.The intermediary effect suggests that development finance promotes firm innovation through the improvement in the level of infrastructure development.According to the heterogeneity analysis,development finance has a significant promotion effect on enterprise innovation for both high-tech and non-high-tech enterprises.The results of empirical tests on industrial upgrading show that development finance significantly contributes to industrial upgrading and economic restructuring.The reason behind this is that the credit support from development finance plays a key role in boosting the level of fixed asset investment in key industries,which in turn contributes to the quality growth of China’s economy in the long run.The findings provide micro-level evidence for the positive contribution of development finance to economic growth.The main contributions of this paper are reflected in the following three aspects:First,the inclusion of development finance variables in Ramsey’s economic growth model theoretically explores the mechanism of the role of financial institutional arrangements with Chinese characteristics on economic growth,which enriches the existing literature on the economic growth effects of financial development.It helps to understand better the financial institutional factors behind China’s economic growth.It has some practical reference significance for policy formulation related to financial governance reform at the current stage.Secondly,this paper carries out relevant empirical tests based on real loan data with provincial(municipal)panel data of medium and long-term loans of China Development Bank and constructs financial decentralization indicators to provide empirical evidence for the hypothesis that the macroeconomic growth theory model of development finance solves,and to provide an empirical analysis basis for the economic growth effect of development finance.Also,this paper extends the estimation and inference of Hansen(1999)for static panel threshold models.The study combines the time series approach of the threshold model with the existing GMM estimation method to propose a new estimation and hypothesis testing method applied to dynamic panel thresholds.By using the data-driven examination of structural mutations of variables,the bias brought by artificial event-based threshold is effectively avoided,and the accuracy of the empirical analysis of the effect of financial decentralization on development finance economic growth is ensured.Third,it provides microcosmic evidence for the view that developmental finance promotes technological innovation.Based on the provincial loan data of development finance and patent data of listed companies,a panel data model is used to study the promotion effect of development finance on enterprise innovation,thus providing micro evidence for the view that development finance promotes economic growth.The empirical evidence of this mechanism is also a major contribution of this paper through further mechanism analysis showing that the impact of development finance on firm innovation promotes firm innovation inputs and outputs mainly through enhancing the level of infrastructure development. |
