Internal Correlation Between Fianancial Development And Economic Growth: An Econometric Analysis

According to economic growth theory, economic growth is promoted by its main endogenous factors, the factors which can promote the long-run economic growth is different with those short-run promoting factors. The concept of economic growth is wider and richer than that of financial development; financial development is included in the economic development, its role of promotion must be realized through other specific economic factors, so there will be divorced from reality if the analysis started without these factors. Under the guidance of theory that have been established and the background of China's development, this paper has theoretically and empirically investigated the possible channels and mechanisms through which financial development effects the economic growth. We also get some conclusions by building theoretical models and dynamic optimization. Through empirical analysis we find: for the long-run, financial development appears characteristics of "supply-oriented", it improves economic growth by enhancing technological level; for the short-run, it is "demand-following", its role of promoting is achieved by expanding aggregate demand. So this paper studies the correlations between financial development and the short-run growth and the long-run growth with specific economic factors from disequilibrium condition and general equilibrium condition respectively.Form empirical analysis we find, business investment and international trade is two main channels through which financial development improves economy with significant growing effects. Before investigating the business investment, we firstly build an optimal investment model with external cash constraint and find that financial development reduces the difficulty of enterprises' financing, financial development is beneficial to enhancing capital accumulation as whole. And we also find financial system is the crucial factor of the establishment of comparative advantage when discuss the combined effects of financial development and international trade to the economic growth. We modelized these effects under the framework of discrete Ramsey - Cass - Koopmans model and use panel data of China's 33 provinces from 1978 to 2006 to test. The result shows that the development of international trade is closely related with financial environment, the countries with good financial development will get more benefits than those without.We mainly studied long-run economic development through technological level under the condition of general equilibrium. We build a R&D model including financial department and use the most advanced econometric tools: Panel Cointegration model to demonstrate it. We finally find the improvement of financial development level especially reducing of financial intermediation cost will enhance the whole society's equilibrium R&D level and long-run economic growth.