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Export expansion, demand for external finance, and regional financial development: Evidence from China

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  • Fu, Dahai
  • Lu, Yi
  • Wang, Shufei

Abstract

Why did China’s export boom not boost its financial development? This paper offers a novel explanation from a regional perspective. We leverage variations in industries’ external finance dependence (EFD) and decompose a region’s export shock into two additive subcomponents: high-EFD and low-EFD export shocks. Our findings reveal that the export expansion of high-EFD industries significantly enhances financial development, while that of low-EFD industries diminishes it. Therefore, the lack of response in China’s financial development to its export expansion stems from the prevalence of regions specializing in low-EFD industries. Our study highlights the importance of accounting for industry-specific variations in external finance dependence when analyzing the demand effects of regional export expansion.

Suggested Citation

  • Fu, Dahai & Lu, Yi & Wang, Shufei, 2026. "Export expansion, demand for external finance, and regional financial development: Evidence from China," Journal of Comparative Economics, Elsevier, vol. 54(1), pages 248-272.
    • Handle: RePEc:eee:jcecon:v:54:y:2026:i:1:p:248-272
    DOI: 10.1016/j.jce.2025.11.001
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    Keywords

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    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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