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Financial development and economic growth: Recent evidence from China

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  • Zhang, Jin
  • Wang, Lanfang
  • Wang, Susheng

Abstract

Using data from 286 Chinese cities over the period 2001–2006, this paper investigates the relationship between financial development and economic growth at the city level in China. Our results from both traditional cross-sectional regressions and first-differenced and system GMM estimators for dynamic panel data suggest that most traditional indicators of financial development are positively associated with economic growth. This result runs contrary to the existing conclusion that a state-ruled banking sector, such as that in China, hinders economic growth because of the distorting nature of the government. Since we focus on the years after China’s accession to the World Trade Organization (WTO) in 2001 while the existing studies mainly covered the years before 2001, our finding suggests that the financial reforms that have taken place after China’s accession to the WTO are in the right direction. To examine the sensitivity of our results, different conditioning information sets are experimented with. Our results are shown to be robust.

Suggested Citation

  • Zhang, Jin & Wang, Lanfang & Wang, Susheng, 2012. "Financial development and economic growth: Recent evidence from China," Journal of Comparative Economics, Elsevier, vol. 40(3), pages 393-412.
  • Handle: RePEc:eee:jcecon:v:40:y:2012:i:3:p:393-412
    DOI: 10.1016/j.jce.2012.01.001
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    More about this item

    Keywords

    Financial development; Economic growth; Emerging market;

    JEL classification:

    • N2 - Economic History - - Financial Markets and Institutions
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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