A Study on the Relationship between China's Regional Financial Development and Economic Growth

Abstract

In this paper, we establish a new index system which can reflect the real quality of economic growth and use the provincial data of 29 Chinese provinces and cities from 1978 to 2014 to study the relationship of financial development and economic growth. Firstly, we analyze the status of financial development of each provinces and cites in China and use the ratio of total deposit and loans to GDP to represent the financial development. We measure the economic growth from stability, coordination, sustainability and results. Basing on the provincial data, we use panel-VAR model and combine IRF to analyze the relationship of financial development and economic growth. We find that the effect of financial development to the changes of economic growth result and sustainability is limited. Overall, financial development decreases the stability, coordination, sustainability and result of economic growth in the long run