A Study of The Impact of Financial Development on the Country’s Monetization

Abstract

Based on dynamic panel data from 45 countries, this article makes an empirical analysis of the determinants of M2/GDP ratio. It reveals that indirect financing dominated by banking system and direct financing dominated by financial markets jointly contribute to the rise of the M2/GDP ratio of a country, while the improvement of efficiency of banking industry and securities market helps reduce it. Finally it offers some suggestions on upgrading China’s financial market and structure in terms of promoting its financial efficiency, innovation and reform.