| Summary: | 碩士 === 銘傳大學 === 經濟學系碩士班 === 100 === This paper analyzes the relationship between financial development and economic growth as well as economic volatility during 1981 and 2011 in Taiwan. The banking development indicators and stock market development indicators are used as financial development indicators. We first apply the autoregressive distributed lag model and bounds testing to test the cointegration relation in the economic growth model, and use the vector error correction model to estimate the short run adjustment process facing the economic shock, then we study and analyze the contribution of financial market development to the economic growth. The result shows that financial development does promote economic growth and reduce economic volatility. The effect of bank development on economic growth is larger than that of stock market, especially the effect from the ratio of credit to private sector to nominal GDP. Therefore, the debt policy in the banking system is more efficient than the equity financing strategy of stock market on economic growth. But the stock market’s function is more efficient than the banking’s if the goal is to reduce economic volatility, especially the effect from stock turnover.
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