Rural Financial Development and Rural Economic Efficiency Improvement Based on Granger Causality Test

Based on the co-integration test theory, Financial Interrelation Ratio (FIR), level of financial efficiency (LFE), level of financial development (LFD) and other indices evaluating the rural financial development are selected by Granger Causality Test. The rural loan balance (RLB), rural deposit balance (RDB), total rural output (TRO), fixed assets investment(FAI), Financial Interrelation Ratio (FIR), economic efficiency (EE), level of financial efficiency (LFE), and level of financial development (LFD) in the years 1979-2007 are collected. Graphical method intuitively reflects the development trend and historical track of relevant indices; and Granger Causality Test verifies the relationship between rural financial development level and rural economic efficiency in the years 1979-2007. Result shows that rural financial development level has significant impact on rural economic growth, but rural economic growth has no significant impact on rural financial development; and rural financial development also has insignificant promotion impact on rural economic efficiency. Thus, conclusions are obtained. Although rural financial development has made certain contribution to the development of rural economy, this kind of contribution is only reflected in total quantity, but not efficiency. Therefore, government should further strengthen the promotion function of financial development for economic efficiency, and gradually establish a virtuous circle system for rural finance and economic development.