The Empirical Study on The Relativity Between Financial

Development and Economic Growth in China

  Chen Liu-qin（陈柳钦）

（ Tianjin  Academy of Social Science , P.R. China 300191）

（天津社会科学院，天津，300191）

 

Abstract： This paper made out econometrics analysis of the relativity between financial development and economic growth. The results have revealed that financial development has promoted economic growth positively but the degree is limited, and that finance variable put up different affection to growth at different period. Then the conclusion was drew that financial development in China gets behind economic growth, so promoting finance deepening and finance system reform will speedup economic growth.

Key Words： Financial development   Financial Deepening   Economic Growth

1 Factor analysis

About the decisive factor of the economic growth, classicism economics thinks , the growth of the national wealth depends on two primary conditions : First, improvement that the division among specialized departments promotes the labor productivity; Second, the increase of workforces quantity and capital scale . The modern economic view thinks too , one countrys long-term economic growth depends on the deposit and investment, It is to realize the key factor that economy increases fast to invest the quantity and investment efficiency. Lasting the economic growths of high speeds need the deposit and investments of competence high, High deposits rates, high rates of investment it deposits money to be at effective transformations that invest undoubtedly important reason who economy grows at top speed. Another important reason is the output efficiency in production factors, such as workforce, capital,etc.

Must appear by the above analysis, the long-term economic growth depends on the deposit economy and investment level on one hand, Depend on the production efficiency in production factors, such as workforce and capital,etc. on the other hand, It is the investment efficiency of the capital too. Draw lessons from Harrod-Domar model of economic growth, divide the decisive factor of the economic growth into:.

Among them, g, Y, I, S expresses economic growth rate, national income, investment and depositting money respectively. E is a output rate of the capital, , to the transformation rate of making the investment in order to deposit money, s is a deposits rate. Among the upper types, at Harrod-Domar assumption terms of the model I=S relaxes to be I＝ ，Namely deposit money and turn into investment to a certain extent, make it accord with reality further. The upper type shows that the economic growth is determined to the conversion ratio of investment and output rate of the capital from the deposits rate, saving in one country economy, These three economic variables are all affected by finance development level. Financial systems convenient to save and flow, company control risk management and product are exchanged resource distribution, Influence the economic growth through" capital accumulation" and these two ways of" technological innovation" finally. The finance is developed( the development, development of the financial market and development of the monetary system which included the financial tool) and reduced the information and trade expenses, Make those investors having potentiality most can get the enough fund and produce technological innovation and products , Thus improves the deposits rate, save to the conversion ratio of investment and production efficiency of investment, And then has influenced and deposit money competence, investment decision, technological innovation and long-term growth rate. The scale, efficiency of the financial department and macroeconomy financial policy on the financial markets will all exert an influence to the deposit and investment, So, the financial system and then influences the economic growth through acting on in three economic variables, So long as any factor of influencing above-mentioned three variables will influence the economic growth finally.

Because of the above analysis, level, deposit of the deposits rate are turned into efficiency and capital output efficiency speed and quality of determining the economic growth of investment. Combine the characteristic of Chinas economical operation, divide the factor of impact on economic growth into following three kinds, Analyse as follows:

(1)The influence factor of the deposits rate . According to the analysis of the above, combine the financial development current situation of our country and influence the relevant factor of the deposits rate of our country include mainly: To can arrange income level resident, the level of true rate of interest, the development degree of the capital market, The monetary degree of the financial asset. The efficiency of the financial department and financing mechanism will exert an influence to the deposits rate , But come to look overallly, depend on the scale level of financial development

(2)The deposit is to the transformation efficiency of making the investment . Determine and deposit money. Adopt some domestic and international scholars daily research approach here, weigh the scale level of financial development with the rate of GDP with the total amount of the financial asset. In addition, the development degree and efficiency of the capital market will be influenced and deposit money to the transformation of making the investment, Seeing that the leading position of the stock market in the capital market of our country, Weigh the scale in the capital market with the rate of the direct financing remaining sum and social financial asset total amount of the stock market.

3)The influence of the output efficiency of the capital. According to preceding analysis, financial development has raised resource distribution efficiency thus improved efficiency of investing in, So weighed the relevant indexes of financial development level and financial department efficiency and formed the measurement index which influence the output efficiency of the capital ; Another important factor of influencing the efficiency of outputs is a factor of technological progress, The tolerance index is expressed with the rate with the material capital of incorporeal capital( manpower capital and research and development capital); In addition, economic structure influence and invest output efficiency, the state-owned economies of our country far less than state-owned economy efficiency investment( Wu Jian 2000). Counting according to" Chinese industrial statistical yearbook", the change trend of the investment efficiency that is economic that 1 of picture reflects different ownership of our country, Invest efficiency reflect increase the that investment in fixed assets bring the increases of outputses of units each time among them. Only if the rising of the proportion of state-owned economy will inevitablely improve the output efficiency of the whole Chinas economy , Drive economic growth.

       

2 the analysis of real example

2.1 Set up models

Analyse on the basis of the factor of the above , will influence the important factor of the economic growth of our country to be be summed up as two big kinds, It is develop at finance in eaches it is the factor structural,including: Finance develop index, capital market development index, deposits rate, save investment conversion ratio and investment structure index s; One kind inhibits the factor for finance, it is a price factor too, is the true rate of interest mainly, Deducting the inflation rate with the interest rate of name shows. Regard GDP rate of increase as the variable of explaining, regard above-mentioned indexes as the variable of explaining, Thus set up the following pluralism linear regression model:

……………(1)

Among them, H expresses the factor of technological progress, for the rates of the incorporeal capital( includes manpower capital and R&Ds capital) and financial asset stock; M shows that the finance is deepened index M2/GDP, supplies the rates of M 2 and GDP for the currency ; R is the true rate of interest, namely the interest rate of name deducts the inflation rate; I show that invests in the index , for the proportion of social fixed assets capital cost to GDP; W is economic structures index for whatting state-owned economy constitute social general the proportions of capital costses; F show financing structure, namely the development levels of capital market( direct financing remaining sum and social financial total amount the rates of remaining sumses). The index of these financial development is influencing long-term economic growth and capital accumulation or indirectly directly .

2.2 Data analysis

This selected works draw and economic growth index at sample, utilize above-mentioned to measure models the finances of one year, Relevant relation and relevant degree while analysing that economic growth and finance of China are developed. The data that this text utilizes stem from" Chinas financial yearbook 2002" ," China 2002 statistical yearbook"s and EIU CountryData Web site,it is and not through calculating and put in order but . The key data is as follows:

                         Table 1 GDP rate of increase and true rate of interest

Count it as follows according to explaining according to what has been chosen partly in it:

(1)Variable H is human capital and the rates of R&Ds capital one and and capital stock . With social financial asset show stock manpower equal to capital, R&D advantage shows by researching and develop the expenditure. (2)R is equal to the interest rate of name and deduct the inflation rate for the true rate of interest. The interest rate of name is a interest rate of acting as a long-term national debt.

(3)F is the financing structure, equal to direct financing and financial total assets proportion , direct financing regards stock financing volume and bond issued amount as the approximate value, Indirectly finance and regard every deposit of financial institution as by approximate value,financial total assets with ones that finance indirectly been direct financing.

2.3 Inspection result

   According to the data during 1979-2001 years, use Eviews 2. 0 measures analysing to above-mentioned models . In order to dispel the different variance of the macroeconomy data, fetch logarithm to some variables in the model , Get the improvement form of the model 1:

ln ………(2)

 

Among them, the coefficient correlation matrix between some financial variables(1979-2001) is the following::

Do not publish uglily from the upper form , analyse and the reality was unanimous basically in coefficient correlation and logic between every variable, Except that shoulder relevantly between the true rate of interest and investment( analyse with logic that is conformed to), Become relevant relations between other variables. Especially the coefficient correlation that the finance deepens the index and investment, development of the capital market and economic structure is relatively high, Relevant degree between interest rate and other indexes is relatively weak, indicate that the impact on financial development of interest rate is not remarkable . Have guaranteed to choose rationality in financial development index in consistency of analysing in dependence and theory between every variable, Measure the prerequisite analysed correctly.

2.3.1 Analyse the result in totality

Use the data of the whole course since Chinas economic reform to analyse about the model, draw the following (ADL) and measure models:

ln

           (-2.24)   (4.57)      (-4.86)      (4.59)      (3.06)    (2.01)      (3.40)

Among them, fit coefficient R2 =0.86, drafting and coefficient R *2 adjusted =0.80,DW =2.27, show the examining value of t in the bracket down, every variable cant be smaller than 5% through the probability that is examined , indicate that the above every variable correlates with the economic growth the relation is remarkable. Because the skewing of monetary policy, R acting as one in the model does not have significance ; R (- 1) show and lag behind the first stage of true rate of interest, to look on true rate of interest of earlier stage as too.

According to influencing the direction, the whole stage of economic development since the reform, technological factor, invest and non-state-owned economic department proportion and economic growth and direction change, the three promote the economic growth through influencing the quantity of investment and output efficiency of investment, this and theory analysis is compatible; The proportion of direct financing is a positive correlation relation too to the economic growth, it is obvious that the development of the capital market plays a positive role to the economic growth; With lag behind true rate of interest the first stage of economic growth appear the positive relevant relation, it is obvious in whole period coming and watch, our country have finance of a certain degree constrain also. What merits attention is , traditional financial development index M2/GDP has a negative impact on economic growth, and influence degree is relatively high, this conforms with analysis result of some domestic scholars (Tan  Ruyong , 1999; Han Tingchun, 2001), is mainly because monetary policy is operated backward, deepen from finance degree also very difficult to say finance develop to of our country secular trend of economic growth only.

 According to influence degree, the impact on economic growth of the proportion of technological progress factor, quantity of investment and nonstate-owned economy is the most important, unanimous with the analysis result of Han Tingchun (2001); The proportion of direct financing is influenced and takes second place, prove that the development of the capital market is still very limited to economic function , with the analysis with Tan Ruyong(1999) Confucianism is identical; And the true rate of interest is right to lag behind the first stage of economic growth influence degree is weakest.

As a whole, the traditional economic indicator of entity has stronger influence function on the economic growth of our country such as technology, investment and economic structure, finance develop between index and to limited extremely to even appears the negative correlation relation function have economic growth, this prove financial development and reform of our country lag behind development in economy, the finance is deepened and the financial reform must move forward further .

2.3.2 Analysis result stage by stage

(1)1978-1990 stages

The stock market of our country has not appeared yet before 1990, while using above-mentioned models to be analysed, must remove this factor of the proportion of direct financing . Estimate according to data 1979 to1999 above-mentioned models, receive the following result:

ln

     （-4.2） （2.42）  （-3.36）  （7.45）    （4.33）  （2.25）   (-0.21)

Among them, drafting and coefficient R2 =0.99, adjusted drafting and coefficient R *2 =0.98,D.W =3. 33.

Can find out from result the above, within 1979-1990 years, make the investment and have stronger facilitation with non-state-owned proportion of economic department to the economic growth, the influence dynamics of the true rate of interest is stronger too, prove that there is stronger depressing finance this stage, improving the interest rate will improve the deposits rate and rate of investment correspondingly. Engineering level of period this to to still relatively light contribution degree have economic growth, prove economic growth of stage this promote by investment growth of quantity mainly, and the influence function of the technological factor is also very limited.

(2)1991-2001 stages

Since December 1990, China stock market concluded, the stock market and bond market developed into the important financing means progressively . The result of using the data at this stage to estimate is as follows:

lng = -8.66 + 2.84lnH - 0.51lnM - 0.01R (-1) + 0.74lnW + 0.82lnF + [AR (1) =0.18, AR (2) =-0.43]

      (-3.31)  (8.84)    (-2.05)    (-2.73)   (2.79)     (8.38)     (2.10)        (-5.96)

Among them, planning and 2 of coefficient R =0. 997, R *2 of planning and coefficient adjusted =0. 992,D. W =3. 16. In the model, cast out because the inspection of variable lnI is not remarkable , other variables can be passed and examined . The most remarkable change is this period, the true rate of interest has a negative impact on economic growth, But influence dynamics to be relatively weak. This proves , really played a certaining push arrives role to the economic growth from the continuous downward modulation of the name interest rate of beginning of 1996, Though the real influence result is not very obvious. Compared with the first one stage, the capital coefficient of impact on economic growth of the incorporeal capital and manpower improves greatly , Prove that the impact on economic growth of engineering level of our country is more and more important. Another important change is, there is remarkable positive influence on economy on the capital market, The negative function of developping the index of the finance becomes small too, prove that there is development trend promoting economic growth progressively in because the financial development of our country.

The finance develope and not the state-owned economy

All the time, analysis of developping contribution degree to the non-state-owned economic department is mostly the analysis of determining the nature about the finance, Observe the influence of every financial variable for the ration, set up the following model ( every variable fetches number value correctly):

ln ＝ …………(3)

Among them, g 2 non-state-owned economic departments rate of increase of total industrial output value , H, M and model ( 1), DF expresses direct financing and GDP rate , IF expresses and finances with GDP rate indirectly, 2 investment in fixed assets of expressing the non-state-owned economic department of T and GDP rate. Statistics data analysis on it use it is among 1979-2001 years, it examine result of as:

ln ＝

     (4.32)      (-6.15)      (3.37)      (0.48)      (7.18)        (-1.42)        (0.10)

Among them, R 2 of coefficient that fit =0. 90, R *2 of coefficient of fitting adjusted =0. 81,D. W =2. 71, it is analysed that the result shows that finances variables and cant be passed and examined indirectly. Could find out from the upper form , the growth of the non-state-owned economic department benefitted from the facilitation of the increase making the investment and technology mainly, There is certain facilitation to its growth too in direct financing, during short a few years, The non-state-owned economic department utilizes direct financing to increase rapidly. The statistics show, by the end of 2001, the market value of the private corporation accounts for about 20% of total market value of China stock market at present; By contrast, traditional indirectness finance what influence does it cost way. Measure result show it is remarkable result for IF to examine variable, have not as relatively little coefficient correlation even, Financing the development of the non-state-owned economic department indirectly obviously influences.

3. analyse that the theory of the result is explained

Measure the result and reality of combining financial development of our country on the basis of the above, may receive following analysis conclusions :

3.1 the financial reform lags behind in economic development

Overall to measure analysis results of model indicate non-state-owned economic department accounted for proportion high, the faster the economic growth is. For a long time, the state-owned enterprise sinks into the predicament of managing rigidly because of the operating mechanism, and the proportion of bad account of bad debt of offering the state-run bank financing for state-owned enterprise mainly rises constantly , cause the poor efficiency of the financial institution, thus restricted the growth of the whole economy seriously. The one that contrasted sharply with inefficient state-owned economy is, the operating mechanism with flexibility of non-state enterprise and higher investment efficiency, play a bigger role to the whole economy. From measure result can find out nonstate-owned economy and economic growth have higher dependence too, the role in economic growth of nonstate-owned economy is more and more important.

    But at the same time, finance develop facilitation in economic growth have and embody in non-state-owned economically fully. May find out from the model( 3) of measuring , the non-state-owned economic growth is with the financial development level and dependence and relatively low on the capital market. As to state-owned economy, finance develop looks to state-owned enterprise big facilitation development. This proves that non-state-owned department is not a beneficiary of financial development, At capital market or to that proportion of financing who state-owned enterprise offer lower than the state-run department system far bank.

The non-state-owned economic department has higher investment will and investment efficiency, such enormous investment demand plan financing system constrain and " ownership discriminate against " all the time, it is satisfied to get for a long time, form the under-capitalization in fact finally. China financial reform and finance, after developing on economic growth, origin under-capitalized actually to result in, actual investment is not enough to reduce the speed of capital accumulation, restrict the long-term economic growth. So it is necessary for China not to strengthen reform dynamics of economic system, dispel and plan financing system constrain and " ownership is discriminated against ", make state-owned economy and nonstate-owned economy in the equal position in the course of financing, get what has been made nonstate-owned economy investment demand it satisfy fully,not thus the getting heavier most may give play to by potentiality and the motive force not enormous against economic growth not enormous of nonstate-owned economy.

3.2interest rate policy must adapt to economic development

   Analyses and finds through the measurement above: At different stages of economic development, impacts on economic growth of the interest rate are different too. Within 1979-1990 years, true rate of interest and economic growth and direction change , higher level of true rate of interest has promoted the first stage of economic growth (1981-1985) of lagging behind, and the high inflation causes lower level of true rate of interest to suppress the economic growth (1986-1990). So, really have finance that inhibits the phenomenon in initial stage ten years in Chinese reform and opening-up, it was suitable that the finance deepened the theory at this stage. But after entering 1990s, the true rate of interest demonstrated the relation with reverse change of economic growth gradually. The lowest a few years (1992-1995) of true rate of interest is but economic growth rate the highest year. The true rate of interest rose progressively after 1996, but economic growth rate dropped progressively . It is obvious 1990s for the future characteristic and shown law obvious, traditional financial promotion to deviate from theory, economical operation of China,, these prove monetary policy to turn down interest rate promote the economic growth will it be latter half the 1990s in another perspective even, though the result is not very remarkable.

   Demonstrate the completely different change law in two different periods during true rate of interest and economic growth, this China fundamental to change what was caused. Financial depression and finance of Mckinnon deepen theory to of our country before the reform and opening-up and financial relation with economic development of initial stage such as reform and opening-up have stronger explanation Function, step into after the the 1990s, market economy and financial market developed rapidly, and financial condition take place corresponding change, accord with Keynes modern economics prerequisite of view of school, so, Keynes monetary policy has stronger explanation ability at this stage.

The analysis based on above can draw the conclusion : It must be in conformity with economy evolution that the finance deepens the theory, high growth of China benefit from finance deepen what theory advocates keep higher policy of true rate of interest to a great extent one year; And after the 1990, because market type fundamental to change, trues rate of interest function to economic growth pass out of existence already, even it is the reverse function to have, the monetary policy of Keynes doctrine is effective instead at this moment.

3.3 finance is deepened and the economic growth

According to return result of the whole period, the impact on economic growth of degree of development of the capital market is remarkable, but the more other economic variables of influence degree are weak; Finance develop index the remarkable negative effect has produced the economic growth. Result these seem and analyse looks contradiction with ahead theory , combine monetary policy analyse to the economical operation course, so far as will find that correspond to reality in above-mentioned inspection result. 3.3.1 Finance deepen index appear negative effect

financial development level correlate with defeat of the economic growth relation monetary policy against result that cycle operate mainly (Tan Ruyong,1999). According to Keynes monetary policy theory, the monetary authorities, in order to press the fluctuation in economic cycle, the monetary authorities often reduce money supply M2 in economic surging period, and GDP at this moment is relatively high, so horizontal index M2/GDP of financial development reduces relatively; In economic decline phase (economic growth rate is lower or the negative value), usually increase money supply M2 , and GDP at this moment relatively low, so finance M2/GDP relatively high to deepen degree, the aforesaid it analyses to be can from go to form change relation of the two find out.

3.3.2 The capital market has a little effect on economic growth

Show capital market of China develop and faint positive impact has produced to economic growth in whole period and analysis stage by stage, this proves that the impacts on economic growth of development of the stock market and bond market are extremely limited, this result and R. The annual result of study of Harris (1997) is unanimous, namely in less developed countries, it is very weak at the most that the stock market develops the effect to the economic growth; In the developed country, the activity level on the stock market has stronger explanation ability to the rate of increase of per capita GDP. The faint positive correlation relation between the capital market of China and economic growth arises from a great deal of respects reason. First of all, there is only the development time of 12 years on the stock market of China, still very immature as to stock market of the developed country in the west, its development and degree of standardizing remain to improve further; Secondly, there are a lot of unstandard respects in the issuing market of the stock and secondary market, if the stock market has excessive speculativeness, the average p/e ratio is on the high side; The relevant policy lacks the consistency, continuity and transparency ; Listed company fund come to raise to at all spend on appointed project. The above reasons cause the present stock market to have a little effect on Chinese economic growth.

 

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