Financial Develoment And TFP

With the deepening of reform and opening up, China’s market economic system hasbeen further improved, the finance system performs a more important rule in theeconomy. The strategy of sustainable development and scientific outlook ondevelopment put forward, so that, the total factor productivity-as the important measureof economic quality and the only source of sustainable economic growth, become thecore problem of studying China’s economic growth. Therefore, recognizing thedeterminants of total factor productivity’s growth not only contains great theoreticalsignificance but also of great significance. There are many researches about therelationship of financial development and total factor productivity already, but most ofthe existing studies only consider how the financial development effect on the totalfactor productivity, but studies about how TFP effect on financial development is notmany; in addition,there aren’t many studies on the relationship between China’sfinancial development and total factor productivity, so this article is a supplement.This paper start from both theoretical research and empirical studies of financialdevelopment and total factor productivity relationship, combined with the nationalconditions of China’s reform of the financial system since the reform and opening up, acomprehensive and systematic examination of the relationship between financialdevelopment and total factor productivity has been investigated, and discussed,howcould China coordinate the relationship between financial development and economicgrowth,in the post-financial crisis era.In the theoretical analysis, this paper reviews the theory of Financial development,the theory of economic growth, and thus to the AK model as the basic framework,tectonic analysis of Financial development and Total factor productivity model of theinteraction mechanism. The model found that Financial development effect on Totalfactor productivity in five paths: Financial developmentâ†'Facilitate transactionsâ†'Improve the efficiency of resource allocationâ†'Increase Total factor productivity;Financial developmentâ†'Optimize the allocation of resourcesâ†'Improve the efficiencyof resource allocationâ†'Increase Total factor productivity; Financialdevelopmentâ†'Mobilization of savingsâ†'Technological advancesâ†'Increase Total factorproductivity; Financial developmentâ†'Risk diversificationâ†'Technological advancesâ†'Increase Total factor productivity;Financial developmentâ†'Supervise thecompany managers and form corporate governanceâ†'Technological advancesâ†'IncreaseTotal factor productivity. The path that factor productivity effect on Financialdevelopment is: Increase of Total factor productivityâ†'economic growthâ†'Financialdevelopment.In empirical research, we first review the development process of China’s financialsystem during the reform and opening up; then described in detail about the selectedmethod chosen in the calculation of total factor productivity; after that we selected eightindicators to measure financial development and use the main-component analysischange the eight single indicators into three composite indicators: the overall size of thefinancial intermediaries (FIS), the degree of capital market development indicators(CMD), financial efficiency indicators (FE); finally, we use the unit root test,cointegration test, Granger causality test to do a empirical analysis on financialdevelopment and total factor productivity. The empirical results show that: regardlesslag of a few of the scale, financial intermediation and Total factor productivity does notexist Granger causality; The development of China’s financial efficiency indicators(lag2and3) perform significant respectively Granger cause of Total factor productivity atlevel of1%and5%; China’s financial development measured by the indicators-degreeof capital market’s development, is not perform a significant TFP’s Granger cause in thestatistical sense,while TFP(lag3) is a significant Granger cause for the development ofthe capital market.Based on existing researches, this paper has the following main innovation:(1)Thisarticle based on the theory of financial development and economic growth theory, useAK model as the framework, from the point of view of the financial function, analysisthe internal mechanism of the interaction of financial development and total factorproductivity;(2)Analysis Two-way effect between financial development and total factorproductivity in the theory and empirical;(3)Use principal component analysis method tocombinate eight traditional financial indicators into three composite indicators.Itreduces the data measurement errors or outliers and establish a measurement systemsuitable for suitable for China’s financial development.