On The Measurement Of Financial Liberalization And The Relationship Between China’s Financial Liberalization And Investment

Financial industry plays an important role in modern economy. According to the financialstructure theory and the financial development theory, financial liberalization can strengthen theinner dynamics of the development of the financial industry, make an increase of investment andwill finally act as a stimulant to economic growth.Financial liberalization effects on the investment and the efficiency of investment throughthe cost of capital, financial development, growth opportunities and relieving financial constraint.Financial liberalization can be conducive to reduce information asymmetries, promote thetransformation from saving to investment, spread the investment risks, strengthen the supervisionsystem of principal-agent and improve technique innovation.By the method of factor analysis, the author got the financial liberalization index of Chinaduring1992to2010and find that the FLI is on the rise basically and the reform of our financialsystem is worked. We employ unit root test, cointegration test, error correction model andGranger causes and consequences analysis. The empirical analysis proves that FLI andinvestment indicator are cointegrated. That implies that they are Granger cause of each other andkeep in equilibrium in the long run. Then, this paper made comparison research using panel dataof China31provinces and cities from1999to2007. Last part is the relative policy suggestion onthe basis of above analysis.