Study On Relationship Between The Regional Financial Development And Economic Growth

Since the reform and opening up, China's economic development has made remarkable achievements. China's Gross Domestic Product surpassed Japan in 2010 and China becomes the world's second largest economy after the United States. With the rapid progress of the economy development, the financial industry is booming and it plays an increasingly important role. Well-functioning financial system can maintain and promote a country's economy long-term, stable development. On the contrary, the collapse of the financial system might lead to the collapse of the economy overall. It could illustrate this fact by the examples of the Asian Financial Crisis in 1997 and the World Financial Crisis in 2008. The financial industry has occupied a central position in the whole process of economic development, so the relationship between the financial development and the economic growth has become one of the focus research in the economic field.Currently, the research on the regional economic development and regional financial is increasing. Beijing, Shanghai, Tianjin and Chongqing are four municipalities directly under the Central government and they are also the core cities of the Bad Bohai economic circle, Yangtze River Delta economic circle and Chengdu-Chongqing Economic Zone. They are the most representative cities in the economic development in China. Based on this, this paper has selected the four municipalities as research subjects to study the relationship between the financial development and the economic growth. It has a very important practical significance. Firstly, this article reviews and summarize the previous research on the relationship between the financial development and economic growth. Then it introduced the theory of financial development and economic growth theory. On this basis, this paper constructions a theoretical framework of the interaction mechanism between the financial development and economic growth. Then it describes the status of the financial development and economic growth of the four municipalities based on the theoretical analysis and make a comparative study. Then it selected the appropriate indicators of the financial development and the economic growth and use the relevant data from 1978 to 2009. On this basis, this paper constructions an VAR model about the financial development and economic growth with the Stationarity test, Cointegration test, Granger causality test, Impulse response function analysis, and Variance decomposition. At last, it make an empirical study on the relationship between the financial development and economic growth in the four municipalities by using the Econometric Methods above.The results show that:1. The financial development and economic growth Granger causes each other in the four municipalities, the economic growth promotes the financial development and the financial also promotes the economic growth.2. Financial development role in promoting economic growth is greater than the role of the economic growth.3. The interaction between the financial development and economic growth in Beijing and Shanghai is higher than that of Tianjin and Chongqing.Finally, for the results above, the paper put forward some proposals for improving the level of financial development and promoting financial and economy develop coordinately.Meanwhile, the paper also put some appropriate policies and measures to speed up the adjustment of industrial structure and develop the financial industry for Chongqing.