Financial Deepening and Economic Growth:A Literature Review and Empirical Study on China

Since the1990s,most western researches on economic growth and financial deepening have been in favor of the supply-oriented hypothesis,that is,the process of financial deepening will promote economic growth by increasing the availability of external financing and reducing the cost of exterior financing.The Granger Causality test of the data on the economic growth and financial deepening in the macro sense from 1978 to 2007 indicates that in the long run most results support the hypothesis that finance deepening is the reason for economic growth whereas the two affect each other in the short run.