Research On The Relationships Between Financial Development And The Imbalance Of Current Account In China

Imbalance of global economic development has become the especially evident problem of economic development in 21 century, and imbalance of current account is the main factor. Generally, people interpret the problem of current account imbalance in the view of import and export, but in the view of macroeconomy, another reason given is that the finance markets are undeveloped. The residents'preventive savings are high, but it can be hardly changed to investment.The research topic of this paper is the relationships between the financial development and imbalance in current account. In analyzing the financial development effect mechanisms on current account and establishing the relationships between the financial development indexes and imbalance in current account from macroeconomic perspective, this paper hopes to cover the traditional current account determinism's ignorance of financial factor and propose suggestions for the improvement of current account in China in the perspective of financial development.On the basis of the theoretical analysis combined with empirical analysis, this paper analyzes and researches the relationships between financial development and imbalance in current account. Firstly, it appraises in three aspects:financial structure,financial efficiency,and financial innovation to analyze the financial development effect mechanism on current account.Secondly, it reviews the current account balance status and the shortages in financial development in China from the views of financial structure,financial efficiency and financial innovation, in the part of empirical analysis,it builds three finance development indexes. In studying the relationship between the financial development index and current account balance in China from 1985 to 2007, based on the existing theories and materials, this paper employs the integration analysis of VAR and VEC. The research result shows that there is a long-term correlation between the financial development indexes and current account balance,in which the financial development is the Granger cause of the current account balance, but not vice versa, which shows finance development can promote the balance of current account. Finally,according to the above result of theoretic analysis and empirical research, and considering the actuality and deficiency of financial development in our country,some policy suggestions are given about the financial development and regime reform with the hope to promote the balance of current account effectively.