Econometric Analysis on the Relationship Between Financial Development and Economic Growth in China Based on Var Model

Abstract

Since the financial crisis, the issue of relationship between financial development and economic growth has been the focus of macroeconomic theory. Based on VAR model, the relationship between financial development and economic growth in China was studied using the method such as Grange causality test, impulse response, and variance decomposition. It is shown that economic growth and financial scale are mutually Granger cause to each other and economic growth is the Granger causality of financial intermediation efficiency. In the short- and long-term, financial scale and financial intermediation efficiency have positive impact on economic growth. The effect of financial market degree on economic growth is relatively small, which is showed that the degree of financial market in China is low, little contribution to economic development.