Advanced Search
MyIDEAS: Login to save this article or follow this journal

Does Financial Development 'Lead' Economic Growth? The Case of China

Contents:

Author Info

  • Jordan Shan

    (Guanghua School of Management, Peking University)

  • Jianhong Qi

    (School of Economics, Shandong University)

Registered author(s):

    Abstract

    Using a Vector Autoregression (VAR) approach, we examine the impact of financial development on economic growth in China. Innovation accounting (variance decomposition and impulse response function) analysis is applied to examine interrelationships between variables in the VAR system and, therefore, differs from the more usual approach. We find that financial development comes as the second force (after the contribution from labor input) in leading economic growth in China. This study has supported the view in the literature that financial development and economic growth exhibit a two-way causality and hence is against the so-called ¡°finance-led growth¡± hypothesis. The study of this kind in the case of China is limited; it therefore provides an interesting advance in the literature on the finance-growth nexus.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.aeconf.net/Articles/May2006/aef070110.pdf
    Download Restriction: no

    File URL: http://down.aefweb.net/AefArticles/aef070110.pdf
    Download Restriction: no

    Bibliographic Info

    Article provided by Society for AEF in its journal Annals of Economics and Finance.

    Volume (Year): 7 (2006)
    Issue (Month): 1 (May)
    Pages: 197-216

    as in new window
    Handle: RePEc:cuf:journl:y:2006:v:7:i:1:p:197-216

    Contact details of provider:
    Web page: http://www.aeconf.net/
    More information through EDIRC

    Related research

    Keywords: Financial Development; Economic Growth; VAR;

    Find related papers by JEL classification:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Demetriades, Panicos O & Luintel, Kul B, 1996. "Financial Development, Economic Growth and Banker Sector Controls: Evidence from India," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 106(435), pages 359-74, March.
    2. L. Deidda & B. Fattouh, 2001. "Non linearity between finance and growth," Working Paper CRENoS 200104, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    3. Khalifa Al-Yousif, Yousif, 2002. "Financial development and economic growth: Another look at the evidence from developing countries," Review of Financial Economics, Elsevier, Elsevier, vol. 11(2), pages 131-150.
    4. Farrokh Nourzad, 2002. "Financial development and productive efficiency: A panel study of developed and developing countries," Journal of Economics and Finance, Springer, Springer, vol. 26(2), pages 138-148, June.
    5. Arestis, Philip & Demetriades, Panicos O, 1997. "Financial Development and Economic Growth: Assessing the Evidence," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 107(442), pages 783-99, May.
    6. Levine, Ross, 1998. "The Legal Environment, Banks, and Long-Run Economic Growth," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 30(3), pages 596-613, August.
    7. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, Elsevier, vol. 66(1-2), pages 225-250.
    8. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, American Economic Association, vol. 88(3), pages 559-86, June.
    9. Wang, Eric C., 2000. "A dynamic two-sector model for analyzing the interrelation between financial development and industrial growth," International Review of Economics & Finance, Elsevier, Elsevier, vol. 9(3), pages 223-241, July.
    10. Evans, Alun Dwyfor & Green, Christopher J & Murinde, Victor, 2002. "Human Capital and Financial Development in Economic Growth: New Evidence Using the Translog Production Function," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 7(2), pages 123-40, April.
    11. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2001. "Government Ownership of Banks," Working Paper Series, Harvard University, John F. Kennedy School of Government rwp01-016, Harvard University, John F. Kennedy School of Government.
    12. Sims, Christopher A, 1972. "Money, Income, and Causality," American Economic Review, American Economic Association, American Economic Association, vol. 62(4), pages 540-52, September.
    13. Philip Arestis & Panicos O. Demetriades & Bassam Fattouh & Kostas Mouratidis, 2002. "The Impact of Financial Liberalisation Policies on Financial Development Evidence from Developing Economies," Discussion Papers in Economics, Department of Economics, University of Leicester 02/1, Department of Economics, University of Leicester.
    14. Sebastian Schich & Florian Pelgrin, 2002. "Financial development and investment: panel data evidence for OECD countries from 1970 to 1997," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 9(1), pages 1-7.
    15. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series, The World Bank 1678, The World Bank.
    16. Levine, Ross & Zervos, Sara, 1998. "Stock Markets, Banks, and Economic Growth," American Economic Review, American Economic Association, American Economic Association, vol. 88(3), pages 537-58, June.
    17. Shan, Jordan Z & Morris, Alan G & Sun, Fiona, 2001. "Financial Development and Economic Growth: An Egg-and-Chicken Problem?," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 9(3), pages 443-54, August.
    18. Jalilian, Hossein & Kirkpatrick, Colin, 2002. "Financial Development and Poverty Reduction in Developing Countries," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 7(2), pages 97-108, April.
    19. Luintel, Kul B. & Khan, Mosahid, 1999. "A quantitative reassessment of the finance-growth nexus: evidence from a multivariate VAR," Journal of Development Economics, Elsevier, Elsevier, vol. 60(2), pages 381-405, December.
    20. Chien-Hsun Chen, 2002. "Interest rates, savings and income in the Chinese economy," Journal of Economic Studies, Emerald Group Publishing, Emerald Group Publishing, vol. 29(1), pages 59-74, January.
    21. Sung Jin Kang & Yasuyuki Sawada, 2001. "Financial repression and external openness in an endogenous growth model," The Journal of International Trade & Economic Development, Taylor & Francis Journals, Taylor & Francis Journals, vol. 9(4), pages 427-443.
    22. Arestis, Philip & Demetriades, Panicos O & Luintel, Kul B, 2001. "Financial Development and Economic Growth: The Role of Stock Markets," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 33(1), pages 16-41, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Muhammad Fadli Hanafi & Berly Martawardaya & Andi M. Alfian Parewangi, 2014. "The Contribution of Saving and Loan onn Economic Growth, The Case of Indonesia," EcoMod2014, EcoMod 7238, EcoMod.
    2. Wang, Chan, 2012. "A very preliminary survey on growth and development," MPRA Paper 39037, University Library of Munich, Germany.
    3. Muhammad, Shahbaz & Saleheen, Khan & Mohammad, Iqbal Tahir, 2012. "The Dynamic Link between Energy Consumption, Economic Growth, Financial Development and Trade in China: Fresh Evidence from Multivariate Framework Analysis," MPRA Paper 42974, University Library of Munich, Germany, revised 26 Nov 2012.
    4. Polat, Ali & Shahbaz, Muhammad & Ur Rehman, Ijaz & Satti, Saqlain Latif, 2013. "Revisiting Linkages between Financial Development, Trade Openness and Economic Growth in South Africa: Fresh Evidence from Combined Cointegration Test," MPRA Paper 51724, University Library of Munich, Germany, revised 25 Nov 2013.
    5. Henryk Gurgul & £ukasz Lach, 2012. "Financial Development and Economic Growth in Poland in Transition: Causality Analysis," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, Charles University Prague, Faculty of Social Sciences, vol. 62(4), pages 347-367, August.
    6. Muhammad Shahbaz & Ijaz Ur Rehman & Ahmed Taneem Muzaffar, 2014. "Re-Visiting Financial Development and Economic Growth Nexus: The Role of Capitalization in Bangladesh," Working Papers, Department of Research, Ipag Business School 2014-485, Department of Research, Ipag Business School.
    7. Wolde-Rufael, Yemane, 2009. "Energy consumption and economic growth: The experience of African countries revisited," Energy Economics, Elsevier, Elsevier, vol. 31(2), pages 217-224.
    8. Phouphet KYOPHILAVONG & Gazi Salah Uddin & Muhammad Shahbaz, 2014. "The Nexus Between Financial Development and Economic Growth in Laos," Working Papers, Department of Research, Ipag Business School 2014-447, Department of Research, Ipag Business School.
    9. Kyophilavong, Phouphet & Salah Uddin, Gazi & Shahbaz, Muhammad, 2014. "The Nexus Between Financial Development and Economic Growth in Lao PDR," MPRA Paper 57308, University Library of Munich, Germany, revised 14 Jul 2014.
    10. Shahbaz, Muhammad & Abosedra, Salah & Sbia, Rashid, 2013. "Energy Consumption, Financial Development and Growth: Evidence from Cointegration with unknown Structural breaks in Lebanon," MPRA Paper 46580, University Library of Munich, Germany.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:cuf:journl:y:2006:v:7:i:1:p:197-216. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Qiang Gao).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.