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Financial Deregulation, Absorptive Capability, Technology Diffusion and Growth: Evidence from Chinese Panel Data

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  • Qichun He

    (CEMA, Central University of Finance and Economics)

  • Meng Sun

    (SEBA, Beijing Normal University)

  • Heng-fu Zou

    (Development Research Group, World Bank)

Abstract

Technological diffusion via FDI is essential for the economic growth of backward economies. However, institutional and policy barriers may slow down technology diffusion. Using a simple theory based on Acemoglu (2009, ch. 18), we predict that there exists an interaction (i.e., a complementary) effect between inward FDI (pool of available world frontier technologies) and financial deregulation (enhancing absorptive capability via lowering institutional and policy barriers) in promoting growth. We test the predictions using the panel data on Chinese provinces during the reform and opening-up period. The Chinese experience is appealing because of the symbiotic financial deregulation and inflow of FDI. We find robust evidence that there is a significant interaction effect between FDI and the level of financial deregulation in promoting economic growth. This furthers our understanding of the reform and opening-up strategy of China.

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Bibliographic Info

Paper provided by China Economics and Management Academy, Central University of Finance and Economics in its series CEMA Working Papers with number 560.

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Length: 30 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:cuf:wpaper:560

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Web page: http://cema.cufe.edu.cn/
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Keywords: Absorptive Capability; Gradual Financial Deregulation; Inward FDI; Interaction; Panel Data;

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