The Development Of Financial Intermediation And Economic Growth-General Model And Empirical Analysis About Chinese Economy

For a long time, the problem that whether and how the development of financial intermediation system affects the growth of the economy has always been discussed by economists. And during the time of the economical crisis which was started by the financial crisis in 2007 in American, it also has practical meaning to understand how the development of financial intermediation system effects the growth of the economy. So in order to guide the development of the Chinese economy, it is crucial to understand how the Chinese financial intermediation system affects the growth of the Chinese economy now.For the theoretical and practical aspects mentioned above, this paper first discusses how the development of financial intermediation influences the economic growth in theory. This paper sets up a model in a frame of endogenous growth and considers whether the economy with a well developed financial intermediation has a higher growth rate than the economy which does not has such financial intermediation. Here the assumption is that the financial intermediation focuses only on offering liquidity for the economy. And in order to set up the model according to the reality, this paper uses the technology as an endogenous variable. After the analysis of the model, this paper shows that in the environment which is set in the paper the financial intermediation which focuses only on offering liquidity will promote economic growth even when the other factors such as technological growth, the amount of saving remain unchanged. So in theory, the conclusion is that the development of the financial intermediation will promote the growth rate of the economy.On the side of empiricism, this paper first uses China's data about bank system in the coastal provinces during the period of 1983-2003 to check whether the development of bank system promotes the growth rate of the economy. In this section, the paper uses the panel data and the method of GMM and proves that the development of Chinese bank system can promote the growth rate of the Chinese economy.Another important part about the financial intermediation system is the stock market. In western country, the well developed stock market provides a good channel for the company to raise funds for the development of the company and thus promotes the growth rate of the economy. In china, the stock market also developed quite fast in the past 30 years. So it is quite important to find out whether the development of Chinese stock market enhances the development of the Chinese economy. In the next section, this paper uses the data about the development of Chinese stock market to check whether the development of Chinese stock market can promote the development of Chinese economy. In order to deal with the problem that the stock market's data has, such as serial correlation and stationarity, this paper uses Augmented Dickey-Fuller test method to check the stationarity of the data and uses special method to estimate the relevance of the development of the Chinese stock market and the growth rate of the Chinese economy. But due to the fact that Chinese stock market has still have a lot of problem to be corrected, the data cannot support the conclusion as the theoretical section shows. The development of the Chinese stock market cannot promote the development of the Chinese economy effectively in current situation.In all, the empirical section shows that now the bank system is still the most important system in the development of Chinese financial intermediation system and this pattern of development is helpful to the development of Chinese economy.So the paper shows both from the theoretical and the empirical sides about the connection between the development of financial intermediation system and the growth of Chinese economy and proves that the development of financial intermediation system is good to the long term growth of the Chinese economy.