Empirical Analysis of China Regional Financial Development and Economic Growth: A Case of Shannxi Province

In order to verify the causality for the regional financial development and the economic growth in Shannxi, the multiple regression model, the co-integration analysis and Granger causality test is used in this paper. Empirical results show that the financial development in Shannxi hindered the economic growth from 1993 to 2008. The cause consists in the low efficiency of resources in financial intermediaries and excessively fast capital accumulation. First, the very low financial intermediary efficiency results in the low conversion rate between deposit and loan, and the result is that financial development does not contribute noticeably to investment growth. Second, the too fast capital accumulation in Shaanxi leads to the continuous decline in marginal reward ratio of capital and the slowdown of economic growth. It is pointed out finally in this paper that Shannxi authorities should start to perfect the internal operational mechanism of financial institutions, strengthen an effective utilization of capital and improve the allocation efficiency of resources.