The Effect Of Banking Concentration On The Output Elasticity Of Capital In Gansu

Although China has rapid economic growth for many years, the economic growth is more and more constrained by resources and environment. It is needed to study how to effectively use material resources when China must have economic transformation. The measure of the efficiency of material resources can generally use the capital-output ratio and the output elasticity of capital, and this paper compares these two measures, pointing out that the output elasticity of capital is more suitable. Finance is the core of modern economy, playing an important role in economy.There has been bank-dominated financial system in China, so the effect of bank on economy worths particular attention. This paper attempts to take Gansu Province as the representative, and study The effect of banking Concentration on the output elasticity of capital. The effect of reduction in banking concentration on the output elasticity of capital can be analyzed from three channels:the improvement of bank efficiency and the reduction of transaction costs; the intensification of screening and monitoring process of the bank; the improvement of financial market efficiency. The paper believes that the reduction in banking concentration can promote the output elasticity of capital.To measure banking concentration of Gansu, the paper selects Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China,China Construction Bank,which are often called the big four banks for short,to calculate concentration ratio. Considering data availability and comparability, the paper calculates concentration ratios in the RMB deposit and loan respectivly in financial institutions of Gansu Province from1984to2012. The measurement of the output elasticity of capital in Gansu Province is through setting a translog production function model, using ridge regression method to obtain model parameters, and then calculating the output elasticity of capital over the years. In order to empirically test the effect of banking concentration on the output elasticity of capital in Gansu Province accurately, a regression model with control variables is used, namely there are two other variables in the model’s explanatory variables besides banking concentration,which are the proportion of the second industry and the third industry in GDP and the proportion of fiscal expenditure in fixed-assets investment. The empirical result confirms that reduction in banking concentration promotes the output elasticity of capital. Finally, the paper suggests lowering the threshold of entering the banking industry and advancing the marketization of interest rates as policy recommendations about reducing banking concentration to promote the output elasticity of capital.