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The investigation on the relationship between the problem of long-term loan and economic growth

  • Wenjie Du
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    Purpose–Since the reform and opening-up policy, the long-term problem of loans became more and more serious when China's economy maintained rapid growth. The purpose of this paper is to explore the profound causes of the medium- and long-term problem of loans and the relationship between it and economic growth. Design/methodology/approach–Using panel data for 28 provinces and cities of China during 1994-2005, this paper investigates the determinants on the maturity of bank credit using threshold panel data of Hansen. In addition, using dynamics panel data, this paper investigates the effects of the maturity structure of bank credit on economic growth. Findings–The drop of bank industry concentration tends to increase the supply of long-term loans. The raise of economic growth and the increase of industrialization degree promote the demand of long-term loans, significantly. Furthermore, the threshold effects of inflation exist. When the initial inflation is lower than 3.9 percent, the raise of inflation can increase the supply of long-term loans. When the initial inflation is higher than 3.9 percent, the raise of inflation can decrease the supply of long-term loans. The increase in the supply of long-term loans can promote the economic growth. Originality/value–The paper has two innovations: first, when studying the determinants on the maturity of bank credit, using the threshold panel approach takes account of the nonlinear adjustment of inflation; second, including the maturity of bank credit into the realm of financial development studies the relationship between this and economic growth.

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    File URL: http://www.emeraldinsight.com/journals.htm?issn=2044-1398&volume=1&issue=2&articleid=1903034&show=abstract
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    Article provided by Emerald Group Publishing in its journal China Finance Review International.

    Volume (Year): 1 (2011)
    Issue (Month): 2 (April)
    Pages: 187-198

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    Handle: RePEc:eme:cfripp:v:1:y:2011:i:2:p:187-198
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    1. Jun Qian & Philip E. Strahan, 2007. "How Laws and Institutions Shape Financial Contracts: The Case of Bank Loans," Journal of Finance, American Finance Association, vol. 62(6), pages 2803-2834, December.
    2. Douglas W. Diamond & Raghuram G. Rajan, 1999. "A Theory of Bank Capital," NBER Working Papers 7431, National Bureau of Economic Research, Inc.
    3. Beck, Thorsten & Levine, Ross & Loayza, Norman, 1999. "Finance and the sources of growth," Policy Research Working Paper Series 2057, The World Bank.
    4. Giannetti, M., 2000. "Do Better Institutions Mitigate Agency Problems? Evidence from Corporate Finance Choices," Papers 376, Banca Italia - Servizio di Studi.
    5. Hansen, Bruce E., 1999. "Threshold effects in non-dynamic panels: Estimation, testing, and inference," Journal of Econometrics, Elsevier, vol. 93(2), pages 345-368, December.
    6. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
    7. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
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