An Empirical Study On The Relationship Between Financial Development Capital Formation And Economic Growth

With the trend of global economic integration, the links between the different economies in the world is becoming more and more closely. In recent years, the U.S. subprime mortgage crisis and the European debt crisis began to spread to other countries in the worlds. The global economy is not optimistic, for the economic development as well as trade had slowdown. The global economic growth rate in2012is only about3.3%according to the world currency Organization data.Under the context of the global economic being hampered, China’s role in boosting the world economy has been gradually more and more important. China has become a worldwide pivotal force for economic development. At the same time, the economic crisis has prompted the actual capital transfer to the new economy, which id a new opportunity for these developing countries. Therefore, in this economic situation, studying the impact of economic growth factors, in particular the financial development, capital formation and economic growth, is very substantially significant.This paper is divided into five parts. The first part is the introduction, describing the article methodology, innovation and deficiencies. The second part reviews the theory of economic growth as well as the theory of financial development and the theory of capital formation. The third part is a comprehensive overview of research in related fields at home and abroad. The fourth part is the theoretical basis of detailed empirical modeling and construction methods. The fifth part of the paper focuses on economic growth, capital formation as well as financial development with different indicators integrated at a measure of indicator. Then I analyze the relationship between capital formation and financial development, and relationship between economic growth and financial development respectively. The main method is to use the data results and theoretical analysis, and regression models to create economic growth model. The sixth part is based on the empirical results in order to give their comments and suggestions on how to develop the financial system as well as the expansion of the scale of capital.The main thesis research result is gathering the causality between capital formation and economic growth, as well as causality between financial development and economic growth, with the method of rigorous step-by-step demonstration. Finally we built a regression model of economic growth through four factors including capital formation, financial development, the amount of labor, the total import and export volume. What’s more, I discuss how various factors have an effect on the economy. This article ends with a discussion to promote economic growth through financial development and capital formation. The ways includes determining the goals as well as specific ways of financial development, and then promoting the principles of capital. The aim is to promote the economic through the development of these two factors.