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Study on the Relationship between Commercial Banks, Stock Market and Economic Growth

Author: LiuYanPing
Tutor: XiaWei
School: Dongbei University of Finance
Course: Statistics
Keywords: Commercial banks Stock market Economic growth VAR ECM Co-integration
CLC: F832.33;F832.51;F124
Type: Master's thesis
Year: 2010
Downloads: 183
Quote: 0
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Abstract

Economic growth is a prerequisite for social development, political stability and improvement of people’s welfare. There are many factors what can promote economic growth, such as the efficient allocation of resources, technological progress, improvement of people’s consumption level, the increase in international trade, human capital accumulation, the system reform and development, and so on, How is the role for economic growth?Finding sources of economic growth, and exploring mechanisms of economic growth in order to be grasp and promote economic growth with better, it is the goals that people always pursuit. In the process of the research on the fountainheads of the economic growth, financial factors have caused more and more attentions。Financial innovation instruments have promoted the level of financial development, while can stimulate growth on economy. Banking and the booming stock is the soul financial system, so both can influence the economic growth. Therefore, study the relationship among them are very important.This paper attempts to do some empirical study to find the relationship among commercial banks, the stock market and economic growth, to explore the functions of commercial banks and stock market on economic growth. What the Macro-economy pursuit is the persistent of a long-term equilibrium relationship, so it is important to know if the same relationship among the commercial banks, the stock market and economic growth exists In the process of economic growth, the relation between stock markets and commercial banks is complementary or alternative, We hope we can answer these questions through the empirical analysis.This paper is divided into four chapters. The first chapter is the introduction of the whole study. Financial factors play an important role in economic growth. As the representative of financial factors, commercial banks and stock market play their indispensable and irreplaceable role in this process, thus bank dominated or stock market dominated which are the two modes of action in promoting economic growth is given out. On the basis of lots of literatures and studies, this paper introduces the research background, the structure and frame of the thesis and research approaches, and indicates main innovations and shortcomings in the dissertation.The second chapter is the interaction mechanism among the banks, the stock market and economic growth. Firstly, it analyzes the three channels’influence on the economic growth including changing the proportion of savings into investment, raising the marginal productivity of capital and affecting private savings rate. Secondly, it analyzes the factors on which the stock market impacts the economic growth, including providing liquidity and decentralize risk, promoting the transformation of savings and funds into investment, improving the efficiency of resource allocation, improving capital efficiency through the disclosure of information and improving the organization of corporate form. Lastly, it studies the interaction mechanism between the banks and the stock market to find out whether there is a substitute or complementary relationship between them.The third chapter is the empirical study, including the foundation of the index system and the application of measurement methods for analysis, using a variety of measurement methods to research the relation between commercial banks, stock markets and economic growth from different aspects and focuses. Analysis of a simple correlation analysis the correlation among the indexes in order to make a preliminary analysis, and conclusions do follow-up consistency test and comparative analysis; of the unit root test method of stationary time series tests, test sequences that are a first order stable, based on this multivariate VAR model, and test that the model is stable; between cointegration test found that sequence there is a cointegration equation, the error correction model and found that the stability of this model; to explore the commercial banks and the role of the stock market mechanism between the non-nested model testing, found that the stock market effect on economic growth than the more obvious the role of commercial banks. Empirical analysis showed that:Commercial Banks undesirable for economic growth, while the stock market can promote economic growth, commercial banks and the stock market there is an interaction between the substitutes, and the stock market effect on economic growth more evident than commercial banks.The last chapter is the conclusion and recommendations. It summarizes conclusion and findings based on empirical analysis, and gives out reasonable interpretations both from the economics and the practice. Then it proposes reasonable suggestions about the reform of commercial banks and the development of stock market. For the commercial banks, there are three-pronged approaches we can use, which includes inhibiting appropriately the scale expansion speed, improving bank management efficiency by great effort and carrying out actively the diversity business. While for the stock market, there are also three methods which can promote their development, including developing rapidly institutional investors, improving financial reporting and disclosure mechanisms, and improving the ownership structure of listed companies.

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