The Nonlinear Relationship Between Financial Development And Economic Growth In China

With the development of modern economy,finance has played a leading role in the economic society and become the core of modern economic development.Researching the mechanism of financial development on economic growth have great practical value in guiding the development of the financial industry.It is also important to promote the sustained and stable growth of China’s economy.This paper takes the data of 31 provinces in China from 1998 to 2016 as the sample,using the panel threshold model to choose the demarcation point scientifically and reasonably.At the same time,it can also avoid the possible error caused by the subjectivity,which can explore the influence under different levels of inflation rate.Firstly,the granger causality test is used to test the causality between financial development and economic growth.After that,we use the factor analysis model to create the financial development index to measure the financial development level of each province.Then,the panel threshold model is selected to study the correlation between China’s financial development and economic growth at different levels of inflation rate.In addition,we also compare the different situations of the relationship between two sectors among the eastern,central and western region,which is important to the understanding of the regional development situation,in order to achieve coordinated economic development of all regions.According to the study,we find that the financial development level has different effects on economic growth under different inflation levels.When the inflation rate is too low,the financial development has an inhibitory effect on economic growth.When the inflation rate is at a moderate level,the financial development will promote the growth of economy.At the same time,the influence of the financial development level of each region on the economic growth is different.The regression coefficient of the financial development of the eastern region is higher than the national level,the situation of central region is close to the national level,and the western region is slightly lower.In addition,based on these conclusions,we put forward some relevant suggestions.China should maintain a moderate level of inflation,formulate corresponding development strategies according to the development characteristics of each region.We also need to accelerate the development of capital market and promote the accumulation of human capital.