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The Empirical Analysis of Relationship Among the Financial Development,economic Growth and Income Allocation in China

Author: ZhouZhen
Tutor: ChenZhiGang
School: Central South University for Nationalities
Course: Regional Economics
Keywords: Financial Development Economic Growth Income Allocation
CLC: F124;F124.7;F224
Type: Master's thesis
Year: 2011
Downloads: 90
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Abstract

Efficiency and fairness has always been the central topic in economic researches. How to reduce the income gap between people while maintain economic growth has always been the major problem economic researches trying to find out. Wealth grows and people’s living quality rises while economy grows, meanwhile, income gap is a key index measuring the quality of economy growth. Rational income allocation arrangements could stimulate people’s intention of innovation and promote the fairness and justice of the society, which provides environment for further economic growth. On the other hand, financial industry has been an important driven force in modern economy as the economy grows. Financial industry affects modern economy from approaches that, financing could form savings and investments; financing could promote the marginal return of capital to maintain economy growth. A completely developed financial system plays an important part in maintaining economy growth and promoting an rational income allocation arrangement. After 30 years of Reform and Opening-up, we successfully kept the economic growth and promoted the living standards of our people, but the income gap between the wealthy and the poor have enlarged dramatically, which severely affected the economy growth and stabilization of society. The continuing enlarging income gap has been a hot discussion in social economy. Meanwhile, Chinese financial system experienced a rapid development while the economy grows. Whether or not financial development could work in economy growth and reduce the income gap has been the attention of economic researches. The financial development theory appeared in 1970s, and was associated with economy growth. After 1990s, scholars gradually associated financial development theory with income allocation theory, and mature models started to emerge. All these researches show that there are close relations between financial development, economy growth and income allocations. There are a lot of researches in the three aspects in our country, but most of which concentrate in only two of them. A research that includes all three aspects would disclose the complex internal relations among the three aspects, and help to the constitution and adjustment of financial and economic policy.Economic phenomenon is part of social phenomenon. The influence of society should be taken into consideration while doing economy research. There are a lot of theoretical and empirical researches on the relationship among financial development, economy growth and income allocation. In this thesis, policy effects and the influence of the mode of economic development are taken into account while using existent models that have been illustrated both domestically and oversea. Then, this thesis collects the datasets of China from 1978 to 2008, utilizes Unit Root test, Granger test of causality, co-integration regression, Vector Error Correction model to analyze the long term relationship between financial development and economy growth as well as economy growth and income allocation in China, Then deduce the relationship between financial development and income allocation. Finally, we put forward some proposes on the establishment and adjustment of macroeconomy and finance policy in China.

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