A Study Of The Exceeding Financial Development And Economic Growth In China

There is a basic consensus on development economics and financial deepening theory:financial development and economic growth is positively correlated,that is,with the degree of financial deepening,the economy will show a growing trend.However,after the outbreak of the financial crisis in 2007,the theorists and practitioners of China's financial industry are facing a phenomenon that raised the question:Is there a diversified financial institution producing negative effects limit boundary?With the extension of the financial industry and the resulting chain of increasingly complex product structure,to a certain extent,the role of financial development on the economic growth will be suppressed?If so,what's the effect?This study was based on the question of these major issues.Firstly,with the phenomenon that a high degree of financial industry margins failed to give proper profit to real economy,this thesis puts forward exceeding financial development theory,referring to a situation that financial sectors develop faster than the real economy to a certain degree which would lead to a negative externality,an increase in the economic run of cost and lower economic growth.What need to be stressed is the relative concept,whether the development of finance exceeds the need of real economy.Secondly,by analyzing the current situation of financial sector and real sector both in China and U.S.,it suggests that the problems of financial development and economic structure jointly lead to the exceeding financial development in U.S.,while the exceeding financial development in China is mostly reflected on the unbalanced financial development.Despite these differences,both has the following features:the excessive financial complicates over the need of real sector,continued high margins and high wage rates and increasing tendencies of financial capital off the real economy into the real estate.Thirdly,based on the above three features,the paper analyzes the mechanism of exceeding financial development on economic growth,that is to clarify why the financial development is referred as exceeding development after reached to a certain threshold.Fourthly,through first-order difference generalized method of moments(FD-GMM)using a different time range of Chinese provincial panel data,the paper testifies the influence of exceeding financial development on Chinese economic growth.The results show that after controlling relative factors affecting the economic growth,if the financial sectors develop higher than the real economy or content too complex to a certain level,the development would exert negative influence on economic growth.Thus,during the process of financial deepening,the role of financial development should not be exaggerated.By contrast,it should pay more attention to the balanced development between the financial sector and the real sector.The purpose of this paper is to focus on the exceeding financial development in China,based on the concept and mechanism analysis on the exceeding financial development in China and U.S.What need to be pointed out is,both of the phenomenon of insufficient and excessive financial development exists in China.The former is reflected in the insufficient general finance and lack of high quality financial derivative products and instruments to maintain the stability of financial systems in face of the external economic shocks.The latter emphasizes the problem of real economy development unmatched by the excessive financial growth,caused by the complex financial products and long chains.At last,the study mainly contributes to the theory and mechanism analysis on exceeding financial development,as well as its relationship with the growth of real economy.