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Financial repression in China's agricultural economy

Author

Listed:
  • Lin He
  • Calum Turvey

Abstract

Purpose - The purpose of this paper is to examine whether or not financial repression exists in the saving and investment activities of farm households in rural areas of China. Design/methodology/approach - This paper empirically investigates repression in rural China using the McKinnon-Shaw model and microeconomic data combined with lending and savings rates and ceilings by rural credit cooperatives. Findings - The paper finds only limited evidence of a repression dominated by savings, while investment response appears to be, at least on average, normal or unrepressed. More specifically, the paper finds that the relationship between growth and investment is consistent with an unrepressed economy but savings do show evidence of repression. Originality/value - The political focus of economic reformation in China has been one of rapid economic growth in urban areas and a neglect of the agriculture sector. This focus on urban growth has led some Chinese scholars to speculate that the residual impact is a repressed agricultural and rural economy, at least in the context of McKinnon and Shaw framework. However, such speculations have not previously been verified. This paper presents the first attempt to determine the relationships exclusively in the context of the agricultural economy.

Suggested Citation

  • Lin He & Calum Turvey, 2009. "Financial repression in China's agricultural economy," China Agricultural Economic Review, Emerald Group Publishing, vol. 1(3), pages 260-274, May.
  • Handle: RePEc:eme:caerpp:v:1:y:2009:i:3:p:260-274
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    References listed on IDEAS

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    1. Panicos O. Demetriades & Kul B. Luintel, 1997. "The Direct Costs Of Financial Repression: Evidence From India," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 311-320, May.
    2. R McKinnon, 1991. "Financial Control in the Transition to a Market Economy," CEP Discussion Papers dp0040, Centre for Economic Performance, LSE.
    3. Kapur, Basant K, 1976. "Alternative Stabilization Policies for Less-developed Economies," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 777-795, August.
    4. Ronald I. McKinnon, 1991. "Financial Control in the Transition from Classical Socialism to a Market Economy," Journal of Economic Perspectives, American Economic Association, vol. 5(4), pages 107-122, Fall.
    5. Feldman, David H & Gang, Ira N, 1990. "Financial Development and the Price of Services," Economic Development and Cultural Change, University of Chicago Press, vol. 38(2), pages 341-352, January.
    6. Alan Gelb & Gary Jefferson & Inderjit Singh, 1993. "Can Communist Economies Transform Incrementally? The Experience of China," NBER Chapters,in: NBER Macroeconomics Annual 1993, Volume 8, pages 87-150 National Bureau of Economic Research, Inc.
    7. Donald J. Mathieson, 1981. "Monetary Policy in an Inside-Money, Open Economy: Reply," The Quarterly Journal of Economics, Oxford University Press, vol. 96(2), pages 357-361.
    8. Gelb, Alan & Jefferson, Gary & Singh, Inderjit, 1993. "Can Communist economies transform incrementally? China's experience," Policy Research Working Paper Series 1189, The World Bank.
    9. Mathieson, Donald J., 1980. "Financial reform and stabilization policy in a developing economy," Journal of Development Economics, Elsevier, vol. 7(3), pages 359-395, September.
    10. Petersen, Mitchell A & Rajan, Raghuram G, 1994. " The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
    11. Khatkhate, Deena R., 1988. "Assessing the impact of interest rates in less developed countries," World Development, Elsevier, vol. 16(5), pages 577-588, May.
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    Cited by:

    1. repec:taf:applec:v:49:y:2017:i:40:p:4083-4098 is not listed on IDEAS
    2. Jenkins, Jesse D., 2014. "Political economy constraints on carbon pricing policies: What are the implications for economic efficiency, environmental efficacy, and climate policy design?," Energy Policy, Elsevier, vol. 69(C), pages 467-477.
    3. Casu, Barbara & Girardone, Claudia, 2010. "Integration and efficiency convergence in EU banking markets," Omega, Elsevier, vol. 38(5), pages 260-267, October.
    4. Duc Khuong Nguyen & Benoît Sévi & Bo Sjö & Gazi Salah Uddin, 2017. "The role of trade openness and investment in examining the energy-growth-pollution nexus: empirical evidence for China and India," Applied Economics, Taylor & Francis Journals, vol. 49(40), pages 4083-4098, August.
    5. Kohnert, Dirk, 2010. "Are the Chinese in Africa More Innovative than the Africans? Comparing Chinese and Nigerian Entrepreneurial Migrants' Cultures of Innovation," EconStor Conference Papers 119528, ZBW - German National Library of Economics.

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