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The investigation on the relationship between the problem of long-term loan and economic growth

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  • Wenjie Du
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    Abstract

    Purpose–Since the reform and opening-up policy, the long-term problem of loans became more and more serious when China's economy maintained rapid growth. The purpose of this paper is to explore the profound causes of the medium- and long-term problem of loans and the relationship between it and economic growth. Design/methodology/approach–Using panel data for 28 provinces and cities of China during 1994-2005, this paper investigates the determinants on the maturity of bank credit using threshold panel data of Hansen. In addition, using dynamics panel data, this paper investigates the effects of the maturity structure of bank credit on economic growth. Findings–The drop of bank industry concentration tends to increase the supply of long-term loans. The raise of economic growth and the increase of industrialization degree promote the demand of long-term loans, significantly. Furthermore, the threshold effects of inflation exist. When the initial inflation is lower than 3.9 percent, the raise of inflation can increase the supply of long-term loans. When the initial inflation is higher than 3.9 percent, the raise of inflation can decrease the supply of long-term loans. The increase in the supply of long-term loans can promote the economic growth. Originality/value–The paper has two innovations: first, when studying the determinants on the maturity of bank credit, using the threshold panel approach takes account of the nonlinear adjustment of inflation; second, including the maturity of bank credit into the realm of financial development studies the relationship between this and economic growth.

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    File URL: http://www.emeraldinsight.com/journals.htm?issn=2044-1398&volume=1&issue=2&articleid=1903034&show=abstract
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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal China Finance Review International.

    Volume (Year): 1 (2011)
    Issue (Month): 2 (April)
    Pages: 187-198

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    Handle: RePEc:eme:cfripp:v:1:y:2011:i:2:p:187-198

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    Web page: http://www.emeraldinsight.com

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    Related research

    Keywords: Banks; China; Credit; Economic growth; Loans;

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    References

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    1. Giannetti, Mariassunta, 2003. "Do Better Institutions Mitigate Agency Problems? Evidence from Corporate Finance Choices," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(01), pages 185-212, March.
    2. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    3. Beck, Thorsten & Levine, Ross & Loayza, Norman, 2000. "Finance and the sources of growth," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 261-300.
    4. Douglas W. Diamond & Raghuram G. Rajan, 2000. "A Theory of Bank Capital," Journal of Finance, American Finance Association, vol. 55(6), pages 2431-2465, December.
    5. Hansen, Bruce E., 1999. "Threshold effects in non-dynamic panels: Estimation, testing, and inference," Journal of Econometrics, Elsevier, vol. 93(2), pages 345-368, December.
    6. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
    7. Jun Qian & Philip E. Strahan, 2007. "How Laws and Institutions Shape Financial Contracts: The Case of Bank Loans," Journal of Finance, American Finance Association, vol. 62(6), pages 2803-2834, December.
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