Study On The Regional Difference In Relationship Of Financial Development With Economic Growth In China

Since China embarked on the path of reform and opening-up, economy has developed fast, GDP has increased intensively and life of people has been improved obviously. However, there is a trend of unbalanced development in China - economy of eastern area has developed better than middle and western area. Specially since 1990, the difference among eastern,middle and western region has been magnifying obviously. Though the reason which leaded to unbalanced development of regions in China is various, we should pay more attention to how financial different development of regions affects economic different development of regions because finance is core of the modern economy.In view of this, it studies the relationship between financial development and economic growth theoretically and empirically in this paper. In the first part, it makes an analysis and summary of the theories of the relationship between financial development and economic growth and the findings of scholars in country and abroad. Then the paper analyzes the function mechanism between financial development and economic growth theoretically, revealing the transmission channel between them, aimed at establishing the basis of stimulating the mutual sound relationship between them by the suitable microeconomic policies are carried out. Finally, it looks back to the process of unbalanced financial development of regions and unbalanced economic growth of regions, revealing the trend of the development of the region difference.In the second part, using economic growth as explained variable, finance as dependent variable and investment and price index as control variables, fixed effect panel data models firstly are established. Using Feasible Generalized Least Squares, it explores how different finance development affects economic growth in the three regions. Next by Granger test it analyses relationship between finance development and economic growth in various regions. The empirical conclusion supports its theory intensively.Through empirical research in this paper, it finds thatâ‘ there is regional difference in the promotion of financial development to economic growth that the pace of economic growth is speeded most rapidly by financial development in eastern region, secondly in western region and thirdly in middle regionâ‘¡there is regional difference in relationship between finance development and economy growth that in eastern region financial development is the cause of economic growth at the same time economic growth also is the cause of financial development, however in middle and western region financial development is the cause of economic growth at the same time economic growth is not the cause of financial development.