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Empirical Research on Control Causality between Financial Development and Economic Growth in China

Author: WeiRongHua
Tutor: YanTaiHua
School: Chongqing University
Course: Finance
Keywords: Financial Development Economic Growth Superexogeneity Control Causality Threshold Effect
CLC: F832;F124
Type: Master's thesis
Year: 2009
Downloads: 220
Quote: 0
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Abstract


Whether or not the financial development influence economic growth is a key policy problem, which is also a hot topic in academic community and has been discussed for almost one century. Whether or not the financial system is perfect and supplies effective service largely depends on the financial policy of government. Therefore constituting reasonable financial policy has become more and more important. For nearly three decades, China’s economy sustained, rapid growth to a certain extent, proved the success of China’s economic transition. Success of economic system in transition benefits from the relative stability of the financial system, which is a consensus view of Academia and the World Bank. Domestic research on the relationship between financial development and economic growth began in the late nineties of last century, with the deepening of research, obtained some valuable conclusions. However, in the existing literature, due to limitations of sample data, differences in the choice of indicators and measurement methods, leading to financial development and economic growth is far from the consensus view. In 2001, China enter the WTO, with the domestic financial markets continuously opening up, China’s financial development has entered a new stage. In the new historical period, exploring the relationship between financial development and economic growth has important practical significance for the country’s economic policy-making.Firstly, this article reviewed the economic growth and financial development theory and described the relationship between financial development and economic growth.Secondly, this article on China’s financial and economic development process and the status quo, as well as the main problems have been analyzed and discussed.Article followed by the empirical parts, which is also the key point and core. First, we use the superexogeneity method analysed and tested the quarterly time series data from 1992 to 2007. In the analysis draws on the "general to simple" modeling method, at the same time, macroeconomic policies will be introduced as a dummy variable model. The results show that the development of finance and economy increase in China has not any forward controlling causality but from economy increase to finance development. Second, Since joining the WTO, along with the deepening of reform and opening up the domestic financial system in terms of both quantity and quality has been greatly improved. Based on this, we analysed whether existing threshold effect or not on financial. We draw the threshold effect model of Hassen and separately to financial intermediaries and capital markets as a financial development variable analysed them. Empirical results show that only the stock market as a financial development variable, China’s financial development and economic growth exist threshold effect.Finally, according to the above empirical conclusions, put forward some policy proposals to promote the coordinated development of the finance and economy

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CLC: > Economic > The world economic profiles,economic history,economic geography > China's economy > Economic construction and development
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