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Financial Development, Capital Accumulation and Productivity Improvement: Evidence from China

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  • Xun Lu
  • Dietrich Fausten
  • Russell Smyth

Abstract

Financial sector development may contribute to economic growth by facilitating capital accumulation and by improving productivity. This article investigates empirically the contribution that financial development may make to these two alternative drivers of economic growth in China using annual data for the period 1952 to 2005. Using cointegration and Granger-causality testing we examine the relationship between financial development and, respectively, capital accumulation and productivity in a time-series vector autoregression (VAR) framework. The substantive findings are that there is either bi-directional Granger causality between financial development and capital accumulation or that Granger causality runs from capital accumulation to financial development, depending on how capital accumulation and financial development are measured. The link between financial development and productivity is found to be statistically weak.

Suggested Citation

  • Xun Lu & Dietrich Fausten & Russell Smyth, 2007. "Financial Development, Capital Accumulation and Productivity Improvement: Evidence from China," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 5(3), pages 227-242.
    • Handle: RePEc:taf:jocebs:v:5:y:2007:i:3:p:227-242
    DOI: 10.1080/14765280701656658
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    Cited by:

    1. Muyambiri Brian & Odhiambo Nicholas M., 2018. "Financial Development and Investment in Botswana: A Multivariate Causality Test," Folia Oeconomica Stetinensia, Sciendo, vol. 18(2), pages 72-89, December.
    2. Muyambiri, Brian & Odhiambo, Nicholas M, 2017. "The causal relationship between financial development and investment in Botswana," Working Papers 22607, University of South Africa, Department of Economics.
    3. Brian Muyambiri & Nicholas Odhiambo, 2017. "Financial Development, Savings and Investment in South Africa: A Dynamic Causality Test," Global Economy Journal (GEJ), World Scientific Publishing Co. Pte. Ltd., vol. 17(3), pages 1-10, September.
    4. Brian Muyambiri & Nicholas M. Odhiambo, 2018. "Financial Development and Investment Dynamics in Mauritius: A Trivariate Granger-Causality Analysis," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 68(2-3), pages 62-73, April-Sep.
    5. Onesmus Mbaabu Mutiiria & Joseph Nzomoi & Peter Kamoni, 2024. "Financial Development and Its Effect on Inclusive Growth in Kenya 2000 - 2022," International Journal of Economics, IPRJB, vol. 9(3), pages 1-20.
    6. Chinnasamy Agamudai Nambhi Malarvizhi & Yashar Zeynali & Abdullah Al Mamun & Ghazali Bin Ahmad, 2019. "Financial Development and Economic Growth in ASEAN-5 Countries," Global Business Review, International Management Institute, vol. 20(1), pages 57-71, February.

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