IDEAS home Printed from https://ideas.repec.org/p/cdi/wpaper/846.html
   My bibliography  Save this paper

Financial Development, Economic Efficiency and Productivity Growth: Evidence from China

Author

Listed:
  • Zhicheng LIANG

    (Centre d'Etudes et de Recherches sur le Développement International(CERDI))

  • Ping HUA

    (Centre National de la Recherche Scientifique(CNRS))

  • Sylviane GUILLAUMONT JEANNENEY

    (Centre d'Etudes et de Recherches sur le Développement International(CERDI))

Abstract

Financial development may lead to productivity improvement in developing countries. In this paper, based on the Data Envelopment Analysis (DEA) approach, we use the Malmquist index to measure China’s total factor productivity change and its two components (i.e., efficiency change and technical progress). We find that China has recorded an increase in total factor productivity from 1993 to 2001, and that productivity growth was mostly attributed to technical progress, rather than to improvement in efficiency. Moreover, using panel data set covering 29 Chinese provinces over the period of 1993-2001 and applying the Generalized-Method-of-Moment system estimation, we investigate the impact of financial development on productivity growth in China. Empirical results show that, during this period, financial development has significantly contributed to China’s productivity growth, mainly through its favourable effect on efficiency.

Suggested Citation

  • Zhicheng LIANG & Ping HUA & Sylviane GUILLAUMONT JEANNENEY, 2006. "Financial Development, Economic Efficiency and Productivity Growth: Evidence from China," Working Papers 200625, CERDI.
  • Handle: RePEc:cdi:wpaper:846
    as

    Download full text from publisher

    File URL: http://publi.cerdi.org/ed/2006/2006.25.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Valerie R. Bencivenga & Bruce D. Smith, 1991. "Financial Intermediation and Endogenous Growth," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 195-209.
    3. Bayoumi, Tamim A. & Rose, Andrew K., 1993. "Domestic savings and intra-national capital flows," European Economic Review, Elsevier, vol. 37(6), pages 1197-1202, August.
    4. Greenwood, Jeremy & Jovanovic, Boyan, 1990. "Financial Development, Growth, and the Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1076-1107, October.
    5. Guillaumont Jeanney, Sylviane & HUA, Ping, 2002. "The Balassa-Samuelson effect and inflation in the Chinese provinces," China Economic Review, Elsevier, vol. 13(2-3), pages 134-160.
    6. Saint-Paul, Gilles, 1992. "Technological choice, financial markets and economic development," European Economic Review, Elsevier, vol. 36(4), pages 763-781, May.
    7. Sylviane GUILLAUMONT JEANNENEY & Ping HUA, 2001. "The Balassa-Samuelson effect and inflation in the Chinese provinces," Working Papers 200106, CERDI.
    8. Ross Levine & Norman Loayza & Thorsten Beck, 2002. "Financial Intermediation and Growth: Causality and Causes," Central Banking, Analysis, and Economic Policies Book Series, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 2, pages 031-084, Central Bank of Chile.
    9. Pierfederico Asdrubali & Bent E. Sørensen & Oved Yosha, 1996. "Channels of Interstate Risk Sharing: United States 1963–1990," The Quarterly Journal of Economics, Oxford University Press, vol. 111(4), pages 1081-1110.
    10. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 717-737.
    11. Ray, Subhash C & Desli, Evangelia, 1997. "Productivity Growth, Technical Progress, and Efficiency Change in Industrialized Countries: Comment," American Economic Review, American Economic Association, vol. 87(5), pages 1033-1039, December.
    12. Wang, Yan & Yao, Yudong, 2003. "Sources of China's economic growth 1952-1999: incorporating human capital accumulation," China Economic Review, Elsevier, vol. 14(1), pages 32-52.
    13. van Wincoop, Eric, 1995. "Regional risksharing," European Economic Review, Elsevier, vol. 39(8), pages 1545-1567, October.
    14. Caves, Douglas W & Christensen, Laurits R & Diewert, W Erwin, 1982. "Multilateral Comparisons of Output, Input, and Productivity Using Superlative Index Numbers," Economic Journal, Royal Economic Society, vol. 92(365), pages 73-86, March.
    15. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 71-102, October.
    16. 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.
    17. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 513-542, December.
    18. Yan Wang & Yudong Yao, 2001. "Sources of China's economic growth, 1952-99 : incorporating human capital accumulation," Policy Research Working Paper Series 2650, The World Bank.
    19. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-586, June.
    20. Levine, Ross, 1991. "Stock Markets, Growth, and Tax Policy," Journal of Finance, American Finance Association, vol. 46(4), pages 1445-1465, September.
    21. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    22. Alwyn Young, 2000. "The Razor's Edge: Distortions and Incremental Reform in the People's Republic of China," NBER Working Papers 7828, National Bureau of Economic Research, Inc.
    23. Jeffrey D. Sachs & Wing Thye Woo, "undated". "Understanding China'S Economic Performance," Department of Economics 97-04, California Davis - Department of Economics.
    24. Gregory C. Chow, 1993. "Capital Formation and Economic Growth in China," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 809-842.
    25. Sylviane GUILLAUMONT JEANNENEY & Ping HUA, 2003. "Real exchange rate and productivity in China," Working Papers 200328, CERDI.
    26. Songqing Jin & Jikun Huang & Ruifa Hu & Scott Rozelle, 2002. "The Creation and Spread of Technology and Total Factor Productivity in China's Agriculture," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(4), pages 916-930.
    27. Lin, Justin Yifu, 1992. "Rural Reforms and Agricultural Growth in China," American Economic Review, American Economic Association, vol. 82(1), pages 34-51, March.
    28. Zhang, Yin & Wan, Guang Hua, 2002. "Household consumption and monetary policy in China," China Economic Review, Elsevier, vol. 13(1), pages 27-52.
    29. Mao, Weining & Koo, Won W., 1997. "Productivity growth, technological progress, and efficiency change in chinese agriculture after rural economic reforms: A DEA approach," China Economic Review, Elsevier, vol. 8(2), pages 157-174.
    30. Zheng, Jinghai & Liu, Xiaoxuan & Bigsten, Arne, 1998. "Ownership Structure and Determinants of Technical Efficiency: An Application of Data Envelopment Analysis to Chinese Enterprises (1986-1990)," Journal of Comparative Economics, Elsevier, vol. 26(3), pages 465-484, September.
    31. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-329, June.
    32. Benhabib, Jess & Spiegel, Mark M., 1994. "The role of human capital in economic development evidence from aggregate cross-country data," Journal of Monetary Economics, Elsevier, vol. 34(2), pages 143-173, October.
    33. Zheng, Jinghai & Liu, Xiaoxuan & Bigsten, Arne, 2003. "Efficiency, technical progress, and best practice in Chinese state enterprises (1980-1994)," Journal of Comparative Economics, Elsevier, vol. 31(1), pages 134-152, March.
    34. Sinn, Stefan, 1992. "Saving-Investment Correlations and Capital Mobility: On the Evidence from Annual Data," Economic Journal, Royal Economic Society, vol. 102(414), pages 1162-1170, September.
    35. Theodore Groves & Yongmiao Hong & John McMillan & Barry Naughton, 1994. "Autonomy and Incentives in Chinese State Enterprises," The Quarterly Journal of Economics, Oxford University Press, vol. 109(1), pages 183-209.
    36. McMillan, John & Whalley, John & Zhu, Lijing, 1989. "The Impact of China's Economic Reforms on Agricultural Productivity Growth," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 781-807, August.
    37. Benhabib, Jess & Spiegel, Mark M, 2000. "The Role of Financial Development in Growth and Investment," Journal of Economic Growth, Springer, vol. 5(4), pages 341-360, December.
    38. Wu, Yanrui, 2000. "Is China's economic growth sustainable? A productivity analysis," China Economic Review, Elsevier, vol. 11(3), pages 278-296.
    39. Iwamoto, Yasushi & van Wincoop, Eric, 2000. "Do Borders Matter? Evidence from Japanese Regional Net Capital Flows," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(1), pages 241-269, February.
    40. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
    41. Beck, Thorsten & Levine, Ross & Loayza, Norman, 2000. "Finance and the sources of growth," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 261-300.
    42. World Bank, . "China - Promoting Growth with Equity : Country Economic Memorandum," World Bank Other Operational Studies, The World Bank, number 14643.
    43. Beck, Thorsten & Levine, Ross, 2002. "Industry growth and capital allocation:*1: does having a market- or bank-based system matter?," Journal of Financial Economics, Elsevier, vol. 64(2), pages 147-180, May.
    44. Zhang, Xiaobo & Tan, Kong-Yam, 2004. "Blunt to sharpened razor: incremental reform and distortions in the product and capital markets in China," DSGD discussion papers 13, International Food Policy Research Institute (IFPRI).
    45. Laurent CORTESE & Ping HUA, 2002. "The Effect of the Real Exchange Rate on Technological Progress. An Application to the Textile Industry in China," Working Papers 200207, CERDI.
    46. Mario J. Crucini, 1999. "On International and National Dimensions of Risk Sharing," The Review of Economics and Statistics, MIT Press, vol. 81(1), pages 73-84, February.
    47. Alwyn Young, 2003. "Gold into Base Metals: Productivity Growth in the People's Republic of China during the Reform Period," Journal of Political Economy, University of Chicago Press, vol. 111(6), pages 1220-1261, December.
    48. Ms. Genevieve Boyreau-Debray & Shang-Jin Wei, 2004. "Can China Grow Faster? A Diagnosis of the Fragmentation of Its Domestic Capital Market," IMF Working Papers 2004/076, International Monetary Fund.
    49. Alwyn Young, 2000. "The Razor's Edge: Distortions and Incremental Reform in the People's Republic of China," The Quarterly Journal of Economics, Oxford University Press, vol. 115(4), pages 1091-1135.
    50. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Samargandi, Nahla & Fidrmuc, Jan & Ghosh, Sugata, 2015. "Is the Relationship Between Financial Development and Economic Growth Monotonic? Evidence from a Sample of Middle-Income Countries," World Development, Elsevier, vol. 68(C), pages 66-81.
    2. Philippe Aghion & Peter Howitt & David Mayer-Foulkes, 2005. "The Effect of Financial Development on Convergence: Theory and Evidence," The Quarterly Journal of Economics, Oxford University Press, vol. 120(1), pages 173-222.
    3. Rosa Capolupo, 2018. "Finance, Investment and Growth: Evidence for Italy," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 47(1), pages 145-186, February.
    4. James B. Ang, 2007. "A Survey Of Recent Developments In The Literature Of Finance And Growth," Monash Economics Working Papers 03-07, Monash University, Department of Economics.
    5. Laurent Cavenaile & Christian Gengenbach & Franz Palm, 2014. "Stock Markets, Banks and Long Run Economic Growth: A Panel Cointegration-Based Analysis," De Economist, Springer, vol. 162(1), pages 19-40, March.
    6. Benfratello, Luigi & Schiantarelli, Fabio & Sembenelli, Alessandro, 2008. "Banks and innovation: Microeconometric evidence on Italian firms," Journal of Financial Economics, Elsevier, vol. 90(2), pages 197-217, November.
    7. Muhammad Arshad Khan, 2007. "Foreign Direct Investment and Economic Growth: The Role of Domestic Financial Sector," PIDE-Working Papers 2007:18, Pakistan Institute of Development Economics.
    8. Swamy, Vighneswara & Dharani, Munusamy, 2019. "The dynamics of finance-growth nexus in advanced economies," International Review of Economics & Finance, Elsevier, vol. 64(C), pages 122-146.
    9. Vighneswara Swamy & Dharani M, 2020. "The tipping point of financial development? – evidence from OECD countries," International Economics and Economic Policy, Springer, vol. 17(1), pages 125-165, February.
    10. Ikonen, Pasi, 2010. "Effect of finance on growth through more efficient utilization of technological innovations," Research Discussion Papers 21/2010, Bank of Finland.
    11. Zeeshan Atiq & M. Emranul Haque, 2015. "Financial Development and Economic Growth: The Role of Financial Liberalization," Centre for Growth and Business Cycle Research Discussion Paper Series 201, Economics, The University of Manchester.
    12. Laeven, Luc & Levine, Ross & Michalopoulos, Stelios, 2015. "Financial innovation and endogenous growth," Journal of Financial Intermediation, Elsevier, vol. 24(1), pages 1-24.
    13. Alejandro Gaytan & Romain Ranciere, 2004. "Wealth, Financial Intermediation and Growth," Working Papers 191, Barcelona Graduate School of Economics.
    14. Ross Levine & Norman Loayza & Thorsten Beck, 2002. "Financial Intermediation and Growth: Causality and Causes," Central Banking, Analysis, and Economic Policies Book Series, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 2, pages 031-084, Central Bank of Chile.
    15. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934, Elsevier.
    16. Gehringer, Agnieszka, 2013. "Financial liberalization, financial development and productivity growth: An overview," Economics Discussion Papers 2013-46, Kiel Institute for the World Economy (IfW).
    17. Gründler, Klaus & Weitzel, Jan, 2013. "The financial sector and economic growth in a panel of countries," Discussion Paper Series 123, Julius Maximilian University of Würzburg, Chair of Economic Order and Social Policy.
    18. Jean Arcand & Enrico Berkes & Ugo Panizza, 2015. "Too much finance?," Journal of Economic Growth, Springer, vol. 20(2), pages 105-148, June.
    19. Zaiter Lahimer, Mahjouba, 2011. "L’impact des entrées de capitaux privés sur la croissance économique dans les pays en développement," Economics Thesis from University Paris Dauphine, Paris Dauphine University, number 123456789/7670 edited by Sterdyniak, Henri, July.
    20. Mohamed Jalloh, 2016. "Stock market capitalisation and economic growth: empirical evidence from Africa," International Journal of Financial Markets and Derivatives, Inderscience Enterprises Ltd, vol. 5(1), pages 76-95.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cdi:wpaper:846. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/ceauvfr.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Vincent Mazenod (email available below). General contact details of provider: https://edirc.repec.org/data/ceauvfr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.