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Financial reforms in China and India: A comparative analysis

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  • Wendy Dobson

    ()
    (International Tax Program, Rotman School of Management, University of Toronto)

Abstract

This paper surveys financial reforms in the world’s two most populous and rapidly-growing economies. The contribution of financial systems to long term growth through the efficient mobilization and allocation of scarce capital is well documented in the literature. India’s financial system is popularly perceived to be better developed than China’s, yet they share two significant weaknesses: under-developed corporate bond markets and bank-dominated financial systems. High levels of state ownership of banks are associated with misdirected lending and high costs of intermediation. The paper examines the institutional frameworks that determine incentives in these sectors and marshals empirical evidence that historical decisions and insufficient market reform suggest performance problems persist. These problems will become more evident when growth slows; indeed a crisis may be necessary to force change since prevailing high economic growth rates in spite of the weaknesses undermine the case for deeper reforms.

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Bibliographic Info

Paper provided by Rotman Institute for International Business, Joseph L. Rotman School of Management, University of Toronto in its series Working Papers Series with number 09.

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Length: 24 Pages
Date of creation: 2007
Date of revision:
Handle: RePEc:ttp:iibwps:09

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Related research

Keywords: comparative analysis; financial systems; China and India;

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Cited by:
  1. Li, Wei & Mengistae, Taye & Xu, Lixin Colin, 2011. "Diagnosing development bottlenecks : China and India," Policy Research Working Paper Series 5641, The World Bank.
  2. Lindbeck, Assar, 2006. "Economic-Social Interaction during China’s Transition," Working Paper Series 680, Research Institute of Industrial Economics.

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