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Financial deregulation, absorptive capability, technology diffusion and growth: Evidence from Chinese panel data

Author Info

Listed author(s):
  • Quichun He

    (Central University of Finance and Economics)

  • Meng Sun

    (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), we predict that inward FDI (pool of available world frontier technologies) and financial deregulation (enhancing absorptive capability via lowering institutional and policy barriers) have a complementary effect on economic growth. We test the predictions using 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 that promotes economic growth. This furthers our understanding of the reform and opening-up strategy of China.

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Article provided by Universidad del CEMA in its journal Journal of Applied Economics.

Volume (Year): 16 (2013)
Issue (Month): (November)
Pages: 275-302

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Handle: RePEc:cem:jaecon:v:16:y:2013:n:2:p:275-302
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Keywords: absorptive capability; gradual financial deregulation; inward FDI; interaction; panel data;

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Find related papers by JEL classification:
  • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
  • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
  • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
  • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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Cited by:

  1. Wu, Mingqin & Chen, Bin, 2016. "Assignment of provincial officials based on economic performance: Evidence from China," China Economic Review, Elsevier, vol. 38(C), pages 60-75.
  2. He, Qichun & Sun, Meng, 2014. "Does fiscal decentralization promote the inflow of FDI in China?," Economic Modelling, Elsevier, vol. 43(C), pages 361-371.
  3. Gunby, Philip & Jin, Yinghua & Robert Reed, W., 2017. "Did FDI Really Cause Chinese Economic Growth? A Meta-Analysis," World Development, Elsevier, vol. 90(C), pages 242-255.
  4. He, Qichun, 2015. "Fiscal decentralization and environmental pollution: Evidence from Chinese panel data," China Economic Review, Elsevier, vol. 36(C), pages 86-100.

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