An Empirical Research On The Dichotomy Model For The Effect Of Financial Development On Economic Growth Of China

The relationship between financial development and economic growth is one of the main problem in financial development theory. In recent years. especially since the rapid development of the financial industry, the research on this issue has caused considerable concern. Whether financial development can promote economic growth. has been a rather important issues in the financial development and economic growth theory, domestic and foreign scholars also had different levels of study in the relationship of financial development and economic growth.In recent years. particularly the appearance of the financial crisis and the European debt crisis, our government attaches great importance to the healthy development of the financial industry, issued a series of views on promoting the development of the financial industry, financial played the supporting role for economic development, and achieved remarkable results.Purpose of this study is focused on understanding each period of financial of the development stage of China's market economy development process. Based on a comprehensive review of the research on financial development and economic growth. we disgust depthly of what type of impact China's financial development to economic growth is to follow. and to study and understand the role of financial development during China's economic growth.In this paper, we use quarterly data from 2000 to 2010 of China, taking into consideration economic data both have the stock index and flow indicator, this unity to take on the stock index (value of the end of last quarter+value of the end of this quarter ending value)/2 for processing. In the selection of indicators of economic growth. nominal GDP growth rate selected in this paper on behalf of economic growth. the financial development variables and other control variables are taken to the nominal value. so here use nominal GDP rather than real GDP. In the selection of indicators of financial development, this paper select M2, corporate debt issuance and stock market capitalization from money market, bond market and stock market, and financial ratios FIR (financial interrelations ratio), BANK indicators as a measure of the representation of financial development indicators. Indicators in the selection of control variables. this paper use some important indicators outside the influence of financial development on economic growth. the amount of fixed asset investment. FDI. government spending, import and export volume and foreign exchange reserves as a control variable.In the theoretical approach, this paper based on the the "supply of leadership model" in "two-sector dynamic model" (dynamic two-sector model) of Feder (1983) and the "dichotomy" model (dichotomy model) of Odedokun (1996). conduct in-depth discussion between the financial development and economic growth relationship. As Odedokun model only select a level of financial development indicators to measure financial development, but in fact, the financial development including both the level of financial development and the efficiency of financial development, this paper models the Odedokun a certain degree of expansion, increasing the efficiency of financial development variables, thus enriching the form and content of the theoretical model.In empirical research methods, mainly the use of objective data and scientific tools. In data processing, after the initial treatment, the first existence of seasonal fluctuations in seasonally adjusted data, the revised data virtual elimination of seasonal effects. Empirical methods, the main use of principal component analysis. AR (2) model and the cointegration model for empirical analysis of the theoretical model; testing methods, the main use of the unit root test. residual serial correlation test and Granger causality test other test methods, the empirical results to conduct analysis to verify the theoretical model assumptions, analysis of the relationship between China's financial development and economic growth, and the estimated financial development on economic growth, external influences effect, test whether the model can explain China's financial development and economic Growth in real phenomena.Empirical results show that:in the long run. there is a significant causal relationship on China's financial development and economic growth, we can see that China's financial development to economic growth with significant positive role, in promoting financial development helps to speed up further improve China's economic growth.Finally, we selected ahead of a static forecasting methods, the use of the first and second quarter 2011 financial data forecasts on the development of the first and second quarter 2011 economic growth, better prediction results obtained, further description of this model of China's financial development and economic growth relationship has a certain interpretation of the role. Finally, empirical results of this paper put forward the development of China's financial policy recommendations related to further enhance the practical significance of this study and practical value.