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Financial Development, Economic Growth and Adaptive Efficiency: A Comparison between China and Pakistan

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  • Ying Ma
  • Abdul Jalil
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    Abstract

    The strong economic growth in China is difficult to reconcile with its inefficient financial system. The puzzle of China's financial development and growth can be explained through a dynamic criterion of adaptive efficiency, rather than through allocative efficiency. Using the framework of an autoregressive distributed lag model, the present paper tests the hypothesis that the GDP growth rate is dependent on financial development along with other variables in China and Pakistan. The hypothesis cannot be rejected in both cases. However, the results show that economic growth has a negative relationship with credit to the private sector in China. We conclude that financial development is a source of China's high growth rate and that the banking system is still under an evolutionary process, involving the pursuit of social objectives instead of the sole objective of profit maximization. Our results provide some implications for other developing countries like Pakistan. Copyright (c) 2008 The Authors Journal compilation (c) 2008 Institute of World Economics and Politics, Chinese Academy of Social Sciences.

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    Bibliographic Info

    Article provided by Institute of World Economics and Politics, Chinese Academy of Social Sciences in its journal China & World Economy.

    Volume (Year): 16 (2008)
    Issue (Month): 6 ()
    Pages: 97-111

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    Handle: RePEc:bla:chinae:v:16:y:2008:i:6:p:97-111

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    Cited by:
    1. Shahbaz, Muhammad & Khan, Saleheen & Tahir, Mohammad Iqbal, 2013. "The dynamic links between energy consumption, economic growth, financial development and trade in China: Fresh evidence from multivariate framework analysis," Energy Economics, Elsevier, Elsevier, vol. 40(C), pages 8-21.
    2. Jalil, Abdul & Idrees, Muhammad, 2013. "Modeling the impact of education on the economic growth: Evidence from aggregated and disaggregated time series data of Pakistan," Economic Modelling, Elsevier, Elsevier, vol. 31(C), pages 383-388.
    3. Ebrahim, Amina, 2010. "The Determinants Of Happiness Among Race Groups In South Africa," Honours Students' Projects 2010, Rhodes University, Department of Economics and Economic History 107588, Rhodes University, Department of Economics and Economic History.
    4. Jalil, Abdul & Feridun, Mete, 2011. "The impact of growth, energy and financial development on the environment in China: A cointegration analysis," Energy Economics, Elsevier, Elsevier, vol. 33(2), pages 284-291, March.
    5. Muhammad, Shahbaz & Tiwari, Aviral & Reza, Sherafatian-Jahromi, 2012. "Financial Development and Income Inequality: Is there any Financial Kuznets curve in Iran?," MPRA Paper 40899, University Library of Munich, Germany, revised 26 Aug 2012.

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