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Financial Vulnerability, Capital Shocks and Economic Growth: Evidence from China (2005-2014)

Author

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  • Chun-Peng Zhang

    (School of Economics and Management, Northwest University, Xi'an, China)

  • Rong Kang

    (School of Economics and Management, Northwest University, Xi'an, China)

  • Chen Feng

    (School of Economics and Management, Northwest University, Xi'an, China)

Abstract

Taking the leading role of the banking industry in the financial system into consideration, this paper constructed a financial vulnerability index by using the method of principal component analysis, and found China's financial vulnerability showed a slightly upward trend in general. In order to confirm the macro factors affecting financial fragility, dynamic regression models were constructed. As a result, the authors obtained seven major macro factors. Finally, the authors determined that an overheated economy, increasing inflation, excessive growth of the country's fiscal expenditures, and export shocks will increase financial vulnerability. However, the increasing investment in real estates and fixed assets may reduce the risk in the financial market. Therefore, China needs to adapt to the new normal economic development model, weaken government intervention in the financial markets, deepen financial reforms, and maintain steady development in the financial system.

Suggested Citation

  • Chun-Peng Zhang & Rong Kang & Chen Feng, 2016. "Financial Vulnerability, Capital Shocks and Economic Growth: Evidence from China (2005-2014)," European Journal of Business Science and Technology, Mendel University in Brno, Faculty of Business and Economics, vol. 2(1), pages 23-31.
    • Handle: RePEc:men:journl:v:2:y:2016:i:1:p:23-31
    DOI: 10.11118/ejobsat.v2i1.56
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    References listed on IDEAS

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    Cited by:

    1. Wagner, Helmut, 2017. "On the (non-)sustainability of China’s development strategies," CEAMeS Discussion Paper Series 6/2017, University of Hagen, Center for East Asia Macro-economic Studies (CEAMeS).

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    More about this item

    Keywords

    banking industry; financial vulnerability; capital shocks; economic growth; China; measurement;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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