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Financial development and economic growth: Recent evidence from China

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  • Zhang, Jin
  • Wang, Lanfang
  • Wang, Susheng
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    Abstract

    Using data from 286 Chinese cities over the period 2001–2006, this paper investigates the relationship between financial development and economic growth at the city level in China. Our results from both traditional cross-sectional regressions and first-differenced and system GMM estimators for dynamic panel data suggest that most traditional indicators of financial development are positively associated with economic growth. This result runs contrary to the existing conclusion that a state-ruled banking sector, such as that in China, hinders economic growth because of the distorting nature of the government. Since we focus on the years after China’s accession to the World Trade Organization (WTO) in 2001 while the existing studies mainly covered the years before 2001, our finding suggests that the financial reforms that have taken place after China’s accession to the WTO are in the right direction. To examine the sensitivity of our results, different conditioning information sets are experimented with. Our results are shown to be robust.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Comparative Economics.

    Volume (Year): 40 (2012)
    Issue (Month): 3 ()
    Pages: 393-412

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    Handle: RePEc:eee:jcecon:v:40:y:2012:i:3:p:393-412

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    Web page: http://www.elsevier.com/locate/inca/622864

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    Keywords: Financial development; Economic growth; Emerging market;

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    Cited by:
    1. Saeed Armin & Saifuzzaman Ibrahim & W. Azman-Saini, 2013. "The Impact of European Monetary Union on Finance-Growth Nexus," Transition Studies Review, Springer, vol. 19(3), pages 347-356, February.
    2. Didier, Tatiana & Schmukler, Sergio L., 2013. "The financing and growth of firms in China and India: Evidence from capital markets," Journal of International Money and Finance, Elsevier, vol. 39(C), pages 111-137.
    3. Bas, Maria & Causa, Orsetta, 2013. "Trade and product market policies in upstream sectors and productivity in downstream sectors: Firm-level evidence from China," Journal of Comparative Economics, Elsevier, vol. 41(3), pages 843-862.

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