An Empirical Study On The Impact Of China’s Banking Market Structure Change On Economic Growth

Now our country is experiencing the economic transformation. And the financial system reformation is being promoted gradually. Although the rapidly expansion of the direct financing, indirect financing through banking system still plays a dominant role. For the importance of banking system, the desirability of its market structure will profoundly affect the function of the whole financial system. Therefore, it’s meaningful to explore how the banking market structure affects China’s economic growth! This paper focuses on this problem, and makes an empirical analysis on how China’s banking market structure affect China’s economic growth.This paper focuses on the small and medium-sized financial institutions in our banking system, which means all banks excluding the ICBC, ABC, BOC and CCB. And in this paper, the market share of the small and medium-sized financial institutions is used to measure China’s banking market structure. All these are based on the view that the change of China’s banking market structure essentially stems from the growth of the small and medium-sized financial institutions. This paper argues that China’s small and medium-sized financial institutions compared to the four biggest ones have the small bank advantage. Therefore the increase of their market share can promote China’s economic growth. On this basis, this paper uses the provincial panel data during1997-2004to investigate how banking market structure affects China’s economic growth.This article consists of six chapters, and there contents are summarized as follows.Chapter1Introduction. It introduces the background and raises the issue. Besides, it presents the research method, the content, the innovation and the deficiency of this paper.Chapter2the Literature reviews. This chapter will fully introduce the existing researches at home and abroad about the banking market structure’s impact on economic growth. But these researches have not reached a consensus on this issue. As we know, the conclusions of theoretical model depend on its assumptions, and conclusions of empirical analysis depend on the data and method. In particular, due to the difference of economic and social environment, the same banking market structure in different country may generate country-specific impact on economic growth. So, it seems more meaningful to study this issue in consideration of the each country’s circumstance. This paper’s analysis is fully combined with China’s reform process and economic and social background.Chapter3the change of China’s banking market structure. It begins with a brief review of the reform in China’s banking system. This shows us the essence of the change is the growth of the small and medium-sized financial institution. Then this chapter uses some indicators describe the change of the market structure in China’s banking sector. All these lay the groundwork for further empirical research.Chapter4the impact mechanism of China’s banking market structure on economic growth. It is the theoretical part of this paper. It begins with a simple endogenous growth model, i.e. AK model. The model explores the general manners for financial intermediaries to promote economic growth. Then it analyzes the impact from this paper’s specific perspective, i.e. China’s small and medium-sizes financial institutions.This paper focuses on the small and medium-sized financial institutions in our banking system. This is based on the view that the change of China’s banking market structure essentially stems from the growth of the small and medium-sized financial institutions. This paper argues that China’s small and medium-sized financial institutions compared to the four biggest ones have the small bank advantage. Therefore the increase of their market share can promote China’s economic growth. Along with this logic, this sector first introduces the relationship leading, and then discusses the small bank advantage. And lastly discusses whether the small and medium-sized financial institutions in China can bring into play the small bank advantage. The results show us that China’s small and medium-sized financial institutions can exert the small bank advantage to promote the economic growth.Chapter5an empirical analysis of the impact of China’s banking market structure on economic growth. Using the provincial panel data during1997-2004, this part creates a dynamic panel model, and applies the system GMM method to investigate the impact. In particular, along with the theoretical analysis, the market share of the small and medium-sized financial institutions is used to measure the banking market structure.Chapter6Conclusions and recommendations. After theoretical and empirical analysis, this chapter generalizes the main conclusions of this paper and gives some suggestions on China’s banking development.The innovation of this paper may be mainly come from the following aspects. Firstly, the research perspective. Start from the small bank advantage theory, this paper focus on the market share of small and medium-sized financial institutions. Secondly, the indicator of explanatory variables. Consistent with the paper’s perspective, this paper uses the market share of the small and medium-sized financial institutions to measure the banking market structure. Thirdly, the sample data. This paper uses the provincial data during1997-2004to carry out empirical analysis. During this period, four biggest bank’s commercial bank statuses have been established, and the property reform has not been carried out. Thus the property reform’s impact can excluded. Fourthly, the dynamic model. To take account of the highly persistent characteristics of China’s economic growth, the paper establishes a dynamic model. Lastly, the system GMM method. A big advantage of the system GMM method is that, it can effectively eliminate the variable’s endophytism.The deficiency of this paper may be mainly come from the following aspects. Firstly, this paper can not take into account of all factors that can affect economic growth. Secondly, this paper does not take into account of the regional imbalance of China’s economic development.