A Study About Influences Of Financial Efficiency On Current Account In China

Economic imbalance especially current account imbalance threatens development of national economy and even world economy. The persistence of current account imbalance is gradually turning into a focus of academic members and policymakers, so it seems particularly essential to discuss factors which influence current account in today’s economy. Development levels of financial markets show a clear difference between major economies with current account imbalance in the real world. Theoretically efficiency of financial system affects savings and investments of economies and further acts on balances of current account. The research of impact of financial efficiency on current account in this paper has both theoretical and practical significance.On the basis of summarizing domestic and foreign literatures about financial efficiency and current account, this paper reviews the conclusion that balance of current account equals the difference between domestic saving and domestic investment. Next the author focuses on analyzing the influence mechanism of financial efficiency on current account through constructing inter-temporal consumption model and holds a view that financial efficiency has an effect on balance of current account through saving and investment. The result indicates that a linear negative correlation is found between financial efficiency and balance of current accountThis thesis introduces development trends of current account and financial efficiency in China diagrammatically and discusses the changing relation between the two preliminary. A conclusion that their changing tendencies are on the contrary generally is drawa Following the author analyzes the influence of financial efficiency on current account empirically with panel data of 31 Chinese provinces from 2000 to 2010. Also this paper adds some other factors that affect current account as control variables besides financial efficiency:ratio of total volume of foreign trade to GDP which reflects opening degree, real effective exchange rate of RMB, old-age dependency ratio which mirrors age structure of population, FDI to GDP ratio and annual change rate of GDP which stands for economic growth rate. Findings of fixed effects regression manifests that the influence of financial efficiency on ratio of current account to GDP is significantly negative and the findings are still sound after adding some other economic and institutional factors. At the end of empirical analysis author explains endogeneity of financial efficiency. In this paper it is considered as an exogenous variable which has no endogeneity.Finally, the author summarizes the thesis and draws inspirations on the basis of above research. Raising LDR of financial institutions is a key element to alleviate huge current account surplus in China. To be specific, lowering excessively high savings rate effectively and adjusting investment structures to maintain steady growth of investment are two important aspects which could raise LDR.