A Research Of Effects Of Informal Finance On The Growth Of Local Economy

In the past few decades, the gross social production of China has been growing with an amazing rapid speed, benefiting from the implementation of the strategy to reform and opening up. However, the construction of the formal finance-based financial markets did not follow the real economy. Insdead the informal finance, as a supplement, was growing silently. It actively provided funds for SMEs(Small and Medium Enterprises, SMEs), promoted private economic development, and had more influence in more and more industries. However, everything has two sides. The continuous expansion of the scale of the informal finance also could increase the instability of the regional financial market and the social economic order. All the time, Wenzhou is one of the most active informal finance areas in China. It is very meaningful that the paper theoretically and empirically analyzed the impact of informal finance on regional economic growth.In the basis of the former study results, this paper firstly defines the concept of informal finance, and details the related theory of the existence and development of informal finance, for example, Financial Inhibition Theory, Financial Deepening Theory, Theory of Information Asymmetry, Institutional Economics. Then, take Wenzhou as example, the paper introduces the main form of local informal finance and the structural characteristics of the social and economic industry, and theoretically analyzes the positive and negative impact of the informal finace on the growth of regional economic. Afterwards, based on the traditional form of the C-D production function, adding the factor of the informal finance, it constructs a new model, uses a variety of measurement methods to verify the impact of the informal finance on the growth of regional economic. The results show that the positive impact is greater than the negative impact, and the growth of the informal finance will promote the growth of regional economic. Finally, based on the above theoretical analysis and empirical analysis, the paper puts forward some policy recommendations about promoting the impact of the informal finance on regional economic.