The Optimal Financial Sector Scale: Theory And Empirical Research

In the modern economy, there is obvious difference among nations' scale and expanding rate of financial system. How to find the optimal financial scale based on different factor endowments within an economy, is not only a controversial academic issue, but also has strong policy implications. The scale of the financial sector has an extremely important relationship with the economic development of a country. Appropriate scale of the financial sector can play a role of financial intermediation and the rational allocation of resources. In general, the optimal size of financial sector through each stage should be matched with financial services demand in the corresponding stage, so as to implement the basic functions of financial structure, and promote the orderly development of the real economy. Scholars'empirical research shows that the higher a country or region's per capita income level is, the greater the scale of the financial sector is. Inadequate financial development or and over-expansion of the financial industry can not stimulate the economy to reach its maximum effect. This paper attempts to derive and verify that there is an optimal scale of financial sector in the economy.In this paper, using theoretical plus empirical analysis, I try to examine our financial sector development level and economic development status. This paper constructs a static analysis framework inside the economy containing financial sector, so as to study how the endogenous factors such as the per capita capital stock affect the welfare state of the whole economy through a number of functions, and provide a new perspective for the purpose of researching the interaction between financial sector scale and the development of industrial economy. We examine the behavior of a financial sector, and then join the neo-classical growth model into it, after that we find the government agencies make the whole economy reach a balanced state, we trace and analyze its root. Next, I review the overview of the development of China's financial sector, combine with China's economic development and financial sector development, use data envelopment analysis (DEA), select the per capita GPA, the national fiscal revenue, population growth, per capita capital stock and banking as the model's importing index, select M2/GDP, banking employment share and ratio of deposit to loan as exporting index, and do a whole performance assessment on the scale of China's financial sector development. The result of DEA empirical method is that since 2006 the development of China's financial sector is well, it basically achieve the optimal financial scale. Sound financial operations cannot be separate from the great efforts of local government and local economy. The financial status appear scale return constant, the financial sector nurturing our economic development is just around the corner.