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Financial Structure and Capital Allocation Efficiency: An Empirical Analysis of China from 2005–2018

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  • Yong Xu
  • Xin Zhao
  • Xiaoxiao Zhou
  • Ling Yuan

Abstract

In this study, we explore the relationship between financial structure and the efficiency of capital allocation to determine a scientific and effective approach to transform and upgrade China’s financial sector. Using China’s provincial data from 2005 to 2018, we detected the threshold effect of financial structure on capital allocation efficiency. We found that financial structure, when using its three agency indicators (credit scale, insurance scale, and stock market size) as threshold variables, and capital allocation efficiency show an inverted ‘U’ relationship. Moreover, the relationship between financial efficiency, insurance scale, and capital allocation efficiency changes from negative to positive, and the relationship between foreign trade scale and capital allocation efficiency shows a significant negative correlation. This research improves the understanding of the relationship between China’s financial structure and the efficiency of capital allocation. Our results show that by optimizing the financial structure through expanding the stock market and the scale of bank credit and appropriately expanding the scale of insurance, more loanable funds will flow into the production sector, and providing certain guarantees can greatly promote improved capital allocation efficiency.

Suggested Citation

  • Yong Xu & Xin Zhao & Xiaoxiao Zhou & Ling Yuan, 2021. "Financial Structure and Capital Allocation Efficiency: An Empirical Analysis of China from 2005–2018," Applied Economics, Taylor & Francis Journals, vol. 53(29), pages 3347-3358, June.
    • Handle: RePEc:taf:applec:v:53:y:2021:i:29:p:3347-3358
    DOI: 10.1080/00036846.2021.1877256
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    Cited by:

    1. Huang, Xinpeng & Meng, Fanshi, 2023. "Digital finance mitigation of ' resource curse ' effect: Evidence from resource-based cities in China," Resources Policy, Elsevier, vol. 83(C).
    2. Li, Shanshan & Long, Fang & Long, Litao, 2022. "Resources curse and sustainable development revisited: Evaluating the role of remittances for China," Resources Policy, Elsevier, vol. 79(C).
    3. Hu, Hao & Li, Ruida & Zhang, Leilei, 2023. "Financial development and resources curse hypothesis: China's COVID-19 perspective of natural resources extraction," Resources Policy, Elsevier, vol. 85(PB).
    4. Zhou, Rong & Su, Kaihua & Zheng, Li, 2022. "Natural resources led growth and the role of financial development: Evidence from Next-11 economies," Resources Policy, Elsevier, vol. 79(C).
    5. Xiaoye Liu & Kedong Yin & Yun Cao, 2021. "Contribution of the Optimization of Financial Structure to the Real Economy: Evidence from China’s Financial System Using TVP-VAR Model," Mathematics, MDPI, vol. 9(18), pages 1-21, September.
    6. Xiaoli Hao & Junhong Qu, 2023. "The role of financial drivers on regional economic resilience: Does information technology level matter?," Journal of Information Economics, Anser Press, vol. 1(2), pages 1-25, July.

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