Download An Empirical Research on Financial Support for the Rise of

An Empirical Research on Financial Support for the Rise of
Central Plains Economy
ZHAO Min,WANG Xue Xin
School of Economic and Management,Henan Polytechnic University, P.R.China, 454000
Abstract: This article will regard Central Plains as a specific region, on the foundation of full research
and investigation, select two aspects of the financial total quantity support and the financial structure
support to analyze the financial support policy function .We obtain that there exists notable relation
between the total quantity support and economic growth. But the regional financial structure still have
many serious twisting phenomena, mainly including hyper-focus on the regional financial organization’s
structure and the regional financial instrument’s structure, and the twisting regional financial resource
allocation structure.
Key words: financial support, total quantity support, structure support, economic growth
1 Introduction
In view of the disappointing result of developing nation finance liberalization, some economists utilize
methods which are different from the tradition "the market-government dichotomy" which has analyzed
the relation between finance and economy. In 1990's, Thomas Hellmann, Robert king, Joseph Stiglitze,
Levine open a new path according to up-to-date endogenous economy theory achievement. They were
strived to make an explanation how endogenous formatted and the relationship between finance
development and economic growth by merging the endogenous financial intermediary body into a
model of finance develop. At end of 1990's, many economists began to change to pure technology,
experience and observe in a visual angle to economy, turned to discussing the finance appropriate
measure and finance efficiency in economic growth.
Domestic economist made many research about the regional financial development and the economical
growth, but the majority only limit to the narrow region scope and the extremely simple measurement
model, or the conclusion quite is reluctant. For example, Han Tingchun used national data and complex
regression model, but he has not analyzed the causal relation of financial development and the economy
growth. In the last few years, along with Co-Integration Theory gradually to utilize for the educational
world, many scholars started the new ponder to this domain. Shan Qiaoying (2003) used the gauging
device and Granger causes to examine, thoroughly has analyzed the inner link between increment rate of
country GDP and the financial development.
Judging from the existing research achievement, domestic economist have yield a certain academic
result in this domain. But look over the existing research, the author thought the domestic existing
research also have some insufficiencies:
(1)Analysis methods are insufficient standard. Although there have massive data, the advanced
statistical analysis method and the computation software tool, the different empirical research obtain
very wide different result. Therefore, existing empirical research regardless of the sample selection, the
analysis method, the empirical research process, theory explanation have many disputes ,which also
responded that the present theory is insufficiency in this research domain.
(2)Purpose is not enough clearly. Although the subject that we study is finance development and
economic growth, the ultimate target ought to be economic growth. Stimulating economic growth have
various approaches, the finance develops is just one kind of means being stimulating economic growth.
Because of few person study problem what require financial system goes to economic growth, therefore,
this problem ought to be worthy for us to ponder deeply.
2 “The Rise of Central Plains” Strategy Propose and the Present Situation about
Financial Support to Central Plains Economic Growth
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Since the reform and open policy, China has implemented successively regional develop strategy such
as opening-up of the eastern region, the great exploitation of West China and prosperity of northeast old
industrial base and so on, but there is not favorable policy to the Central Plains which is in the middle of
China, the Central Plains is in "the edge" condition, “Central Area Collapse Theory" gradually is pay
attention by the economist. Generally speaking, the Central Area are include six provinces: Henan,
Hunan, Hubei ,Jiangxi ,Anhui ,Shanxi, the Central Plains on behalf of Henan province only. Under such
background, in March 2004, Premier Wen Jiabao explicitly proposed "the promotion the rise of the
Central Area of China "in “Government Report" which did in Ten Session of National People's Congress.
In the development strategy of "the rising of the Central Area of China ", Henan economic output and
other main economic indicators occupy head of the Central Area of China province, which have obvious
position and economical resources superiority. In July 2003, Chinese Communist Party Henan Province
Party Committee Seven Session document "Central Plains about Comprehensive Constructing Well-off
Society's Plan Summary" explicitly proposed "Central Plains must optimized structure and enhance the
benefit as the foundation guarantees the realization per person GDP in year 2020 up to two times
compare to 2000,achieved 3,000 US dollars per person GDP, make the Henan development at the front
of the central and western area, realize the rise of Central Plains."
At present stage, the superiority of financial support the rise of Central Plains is gradually intensify. The
Central Plains finance enlarge loans to the farming, forestry and fishery. In 2005, the entire agriculture
loan is remaining sum amounts to 106.296 billion Yuan, which is grow 13.11% compared to 93.98
billion Yuan in 2004, is maintaining the largest agricultural province status in China. The industry loan
drops from 112.486 billion Yuan in 2004 to 94.316 billion Yuan in 2005, but has highlighted the support
pillar industry such as coal, electric power, food, and chemical industry, thus makes increasing value of
industry in sixth places in China, the status of big province of industry is basic establishment in China.
In 2005 ,the Central Plains total output value over 10,000 billion Yuan, becomes number fifth which
total output value over billion Yuan, and comes heads of 18 provinces urban district in the Western and
Central Area, the increasing per year is higher 1.3 percentage than the national average level. But the
financial support still had some prominent problems, such as the loan mainly went to the state-owned
enterprise, which universal performance of the high debt rate; support is insufficient to Medium-size and
small enterprises, individual and private enterprise which may be potential development. There also
exist administration intervention system , the fund mobile channel is not smooth. The author does below
research about how financial support play the key role on the rise of Central Plains economy growth.
、
3 The Financial Total Quantity Support to the Central Plains Economic Growth
The financial total quantity support is refers to using total quantity index such as the region monetary
fund quantity, the financial organization deposit and loan scale, total investment quantity to analyze its
role in economic growth. We may understand financial total quantity support is the relationship between
forms of the money capital accumulation and the economic growth.
3.1Model and Index Select Principle
The economist have conducted massive research about the function mechanism of financial
development to the economic growth. The early Harrod-Domar model hypothesis suppose that the
output -capital ratio is constant, thus there has:
gt+1=
∆Yt+1 σ∆Kt
It
St
=
=σ
=σ
= σ st
Yt
Yt
Yt
Yt
，s = YS
t
t
expresses for the deposit rate. But output - capital
t
ratio( σ ) is constant means that the margin output of capital is constant, which is not lies with the
economical reality, therefore Charles Jones has conducted further research, studied the AK model,
usually namely the Intrinsic Growth Model. We obtain possible channel which the financial industry
development influence economic growth based on this model.
Consider the bank financial system, its function is absorb unused deposit and assign resource, assume
that deposit takes certain proportion θ change as investment, but other partially 1- θ
for the
（ ）
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financial resources leakage rate, thus there has It= θ St ,
It St
= θ = st θ ,but the capital storage
Yt Yt
quantity growth majority of comes from the accumulation of capital activity, thus has
It=K t+1- 1- δ K t
Kt= K t+1- K t= It- δ K t.
In upper formula, assume that capital is all used for capital investment, but when the depreciation rate of
（ ） ，△
δ
unit investment is
△Y
t+1=
gt+1=
, A=
dYt
is the capital margin productivity. It is able to get steady growth rate by:
dKt
（
） （
Yt+1- Yt = AKt+1-AKt=A K t+1- K t = A It- δ K t
∆Yt+1 A( It − δ Kt ) AIt Aδ Kt
=
=
−
= A θ st- δ
Yt
Yt
Yt
Yt
）,
Among them, It and St express total investment and total deposit respectively, Yt, A and K t represent
output, the capital margin productivity and the capital storage quantity. It is very obvious that the upper
formula has revealed the way which the finance influent economic growth, such as capital margin
productivity A , the proportion of deposit transform as the investment θ , enhances deposit rate st ,or
that is to say these were the financial function three aspects which affect to the economy: improve the
capital allocation, the proportion of deposit transform as investment and the deposit rate.
3.2The Empirical Research on Henan Province
Along with the development of Central Plains economy and finance, the factor affecting economic
growth is complicated day by day .Stock and bond market are establish,the direct financing channel
broaden further. Under such background, we require make certain expansion what factors affect
economic growth. Thus we can use traditional and innovative method analysis .
3.2.1 Traditional Method Analysis
We can choose the index which reflect finance quantity supports to economic growth as following: the
indicator GDP reflect economic growth ,the factor which affect deposit rate st is banking institution
bank deposit D; the indicator credit C reflect the proportion of deposit transform as the investment θ ;
the indicator I is investment which reflect the capital allocation. We can choose the index to build the
following econometric model to reflect these three indicator to the economic growth respectively :
GDP=a + α 1 D ,
GDP=b + α 2 C ,
GDP=c + α 3 I
The sample data what author adopts is 1985~2005 during 21 years Central Plains economic and
financial development relate data, carry out Eviews 4.0 statistics software estimation like Table 1:
㏑
㏑
㏑
㏑
㏑
Table 1 Regression Relation on GDP,D,C, I
GDP D
GDP C
1.892864
-0.295587
0.829546
1.120232
0.988922
0.969749
0.988339
0.968157
Ta=13.14141
Tb =-0.900867
T α 2 =24.67948
T α 1 =41.18410
41.18410 2.093
24.67948 2.093
remarkable relevance
remarkable relevance
与
Index
a ,b, c
α1 α 2 α 3
R- squared
Adjusted R- squared
t-Statistic
model
㏑
与
＞
inspection
＞
(liberty degree=21-2=19
t0.025(19)=2.093
Note: Correlation is significant at the 0.05 level (2 –tailed)
）
与
GDP I
1.997704
0.889606
0.992695
0.992311
Tc=17.41457
T α 3 =50.81309
50.81309 2.093
remarkable relevance
＞
According to the T examination result, under level at 0.05, exist remarkable relevance between GDP and
D , C , I. In previous stated, the coefficient of elasticity is ratio of referring to the rate of dependent
variable change and independent variable change. In above three functions equation, we can see easily
that bank deposit balance grows by 1% every time , outstanding bank credit grows by 1% every time ,
investment increases by 1% every time , Central Plains GDP is therefore likely to grow by
0.829546%,1.1202325% 0.889606%.The function of C is the most important indicator contribution to
，
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Central Plains economic growth.
3.2.2 Innovative Method Analysis
We can use innovative method to analyze the financial total quantity support to the Central Plains
economic growth. Rate r affecting deposit rate st. Finance level of development target(M2/GDP) and the
capital market growth degree FD/FT as measured by the investment θ which on behalf of the
financial development level or the financial department's efficiency. FD/FT is the proportion of direct
financing balance takes up society total quantity finance balance. The capital margin productivity A is
technology advancement in process of investment increases by capital accumulation , the judge index is
HR/K which measure by intangible capital quantity (the R&D capital) to the material capital quantity
(the capital storage quantity) .We can choose these index to build the following econometric model:
（
㏑ GDP= d+ β ㏑ r+ β ㏑
1
M2
2
GDP
）
+β3
㏑
FD
+β4
FT
㏑
HR
+µ
K
Because get the data is limited ,the sample data what author adopts is 1998~2005 during 8 years the
Central Plains economic and the financial development relate data, carry out Eviews 4.0 statistics
software estimation like Table 2:
Table 2 Regression Relation on GDP, r,
Variable
d
LN r
M2
GDP
FD HR
,
FT K
,
M2
LN
LN
GDP
Coefficient
0.683110
-0.502354
t-Statistic
0.831816
-16.11011
Std. Error
0.821227
0.031183
Prob
0.4665
0.0005
Note: Correlation is significant at the 0.05 level (2 –tailed)
HR
FD
LN
K
FT
0.128875
2.389636
0.053931
0.0968
0.076935
1.658258
0.046395
0.1958
0.04272
9.231679
0.165431
0.0027
We get the following equation from Table 2:
㏑ GDP=0.683110-0.502354 LN r +0.128875 ㏑
M2
+0.076935 LN
GDP
FD
HR
+0.04272 LN
K
FT
Among them ,the R-squared=0.998006, Adjusted R-squared=0.995347, equation fitting fairly good, has
passed the T- examination, which means that the indicator is remarkable correlation to economic
growth ,but only r is the negative function to the economic growth ,other indictor have positive
function .
4 The Financial Structural Support and the Central Plains Economic Growth
The finance structural theory early proposed by American famous economist Goldsmith at the end of
20th century, whose representative book was "Financial Structure and Development" published in 1969.
Goldsmith thought that all financial phenomenon may induce into the financial tool, the financial
organization and the financial market. Liu Renwu (2003) proposed the region finance structure is sum of
the regional finance tool, the financial organization , the financial market and the financial system . The
optimized finance structure may have the optimized total quantity and the structure dual effect, its main
transmission process may describe as follows: (1) optimize region finance structure optimize deposit
and investment structure optimize current fund capacity structure
optimize fund storage quantity
structure
optimize element of production disposition structure
optimize production and the
industrial structure optimize society supply and demand structure; (2) optimize regional financial
structure promote balance between deposit and investment promote balance between credit revenue
and expenditure promote balance between currency supply and demand promote balance between
total quantity of society supply and demand.
→
→
→
→
→
→
896
→
→
→
→
4.1Model and Index Select Principle
We can carry on the index selection of region financial structure from three levels: macroscopic, center
and microscopic view. Macroscopic view including region finance policy goal, region financial system;
center view including region financial organization and money market constitution; microscopic view
including general scale and the various constitution of the region financial tool, as well as different
profession distribution and financial property price mechanism. Thereupon, weigh the region finance
structure supposed to be include: (1) Region Finance Correlation ratio RFC namely finance gross
asset /GDP, use to weigh economic zone finance degree;(2)Area Inner Capital Formation ratio (AICF)
namely region capital formation volume/GDP; (3) Region Financing Structure ratio (RFS), is express by
the ratio between in domestic loan and self-provides fund in the economic zone;(4 Area Finance Assets
Centralized ratio (RFAC), is refers to the financial property in the region of non- financial department,
the financial department, the government department and household respectively; 5 Regions Finances
Tool Centralized ratio (RFTC), is express by centralized degree which each kind of financial tool
distribute in the region (for example stock, bond, deposit, guarantee reserve fund and so on).
4.2The Empirical Research on Central Plains
In order to examine the correlation between the region financial structure and the economic growth, we
establish a regression model on the region economic level. We select the Central Plains 1998~2005 year
relate data to carry on empirical research:GROWTHi = + OTHERi + FSi + i
In the regression model, dependent variable GROWTHi is per person actual GDP economic growth;
OTHERi expressed other possible essential factors. For example, initial average per person income,
population average educated year, inflation rate, currency, finance and foreign trade policy and so on;
FSi is an regional financial structure index , these are RFC,AICF, RFS , RFAC, RFTC,
i is random
error item.
（ ），
，
）
（）
，
α β
γ
ε
ε
Table 3 The Regional Financial Structure and the Economic Growth Correlation Examination
R2
Index
Regression coefficient Standard deviation T-examination P
RFC
0. 518
0. 245
2. 569
0. 021
0. 345
AICF
RFS
RFAC
RFTC
0. 678
-0. 042
0. 623
0. 829
2. 427
3. 112
0. 163
0. 017
0. 470
0. 369
-0. 268
-0. 221
0. 552
0. 536
4. 639
3. 557
0. 005
0. 056
0. 425
0. 524
Regional financial structure (independent variable) and economic growth rate (dependent variable)
regression result listing from Table 3 are perceive as RFC,AICF, RFS , RFAC, RFTC five region
financial structure index all entere the regression model notably. This indicate that the regional finance
structure and the region economic growth exist remarkable correlation, the first two are positive
correlation to regional economic growth, the last three index are negative correlation to regional
economic growth.
5 Conclusion
（1）We can see from the Table 1 that the function of the loan( C ) to Central Plains economic growth
draws biggest function. Judging from China actual circumstances, China economic development is not
lacking of money in a certain sense, what problem does not lie in deposit absolute size, but lies in utilize
the large amount of inhabitant deposit. According to nowadays condition, the fund utilization is more
important, the loan and the quantity and the quality of investment will have the huge influence to the
economical development.
(2)The actual rate of interest and the economic growth rate are negative correlation. The actual rate of
interest improves a percentage each time, the economic growth rate reduces 0.5 point ,which means
raise the actual interest rate to be able to suppress the economical growth. Investigate its reason mainly
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are: since entered the 90's, enormous changes happened in our country marketplace, what means
transform from the buyer market to the seller market. The investment margin profit generally reduce,
therefore raises the actual interest rate only to be increase the investment cost and the suppression
investment, causes the economical growth to be slowly, the real interest rate and the economic growth
rate assume negative correlation .
3 Central Plains financial market is not developed enough , the financial implement is unitary ,
financial innovation insufficiency, currency substitute relative backwardness, the resident is short of
investment means. Our country residents have the deposit traditional, the saving deposit always first
choice financial property form, causes the bank balance grow rapidly. Thus causes the money circulation
velocity slowing down, That is why M2 is increased and lead to M2/GDP is high .
4 Reflected the indirect financing index FD/FT and the reflection intangible capital HR/K assume not
the remarkable correlation dependence to the economic growth rate, which indicated that the stock
market and the scientific research disbursement are not obvious to the local economic growth. The
Central Plains stock market established not long time, many places are not standard, need to be
improved and perfected further. Investment transform to real productivity has certain time stagnant. The
possibility effect brings reason why these two index were play not notable function.
5 We can see from the Table 3 that RFS is -0. 042, RFAC is -0. 268, RFTC is -0. 221 ,which
indicated that under the existing monetary system, the region finance structure still has many serious
distortions phenomena. In the region, the financial property and the financial tool concentrate
excessively. Judging from regional finance assets inner structure, area finance asset concentration, 80%
~ 90% is creditor's form, only about 10% is stock right form. In the financial department creditor's rights
structure, currency and quasi-money is the absolute main body, but the insurance reserve fund and the
financial organization bond may ignore.
(6)The regional financial institution structure concentrate excessively, the competitive region money
market structure not yet form. The proportion of 4 big state-owned commercial banks property to the
financial organization gross asset are too big, other commercial banks and non- bank financial
organization proportion are still smaller. In Central Plains , the Renminbi deposit market share 59.35%
by 1998 dropped to 2003 52.71%, the loan market share 58.85% 1998 drop to 2003 51.21%.This
indicate although the financial organization quantity unceasingly increases, but still has not changed the
state-owned commercial bank oligopoly pattern, medium-sized and small joint stock system bank still
poor strength, other folk capital are basically repelled outside the financial department.
In brief, only through the vigorously developed region capital market and strengthen the financial
innovation, causes the financial tool and the financial organ multiplication in the region, unceasingly
straightens out the region finance resources disposition structure and promotes the region finance
relevance rate, can improve the region finance structure and enhance the financial efficiency, thus
promotes the region economy develop and achieve the aim of the monetary system reform.
（）
（）
（）
References
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[1] Goldsmith Raymond.Financial Structure and Development. Yale University Press,1969:123 187
[2]Levine.Stock Markets,Banks and Economic Growth.World Bank Policy Research Working Paper,
1997: 90 92
[3] Lucas,Robert,E.JR. On the Mechanics of Economic Development. Journal Monetary Economics,
1988, July 22(1):3-42.
[4] Diamond.Financial Intermediation and Delegated Monitoring. Rev.Eco. Stud,1984, 51(3): 393-414.
[5]Han Tingchun. Financial Development and Economic Growth. Qinghua University
Press,2002:136~140(in Chinese)
[6] Ru Hairu.The Research of the Regional Finance. China Commercial Press. 1998：26-78. (in
Chinese)
The Author can be contacted from Email: [email protected]
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