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Financial Sector Development, FDI and Economic Growth in China


  • Christer Ljungwall

    (China Centre for Economic Research)

  • Junjie Li


The economics-literature, drawing on endogenous growth theory, suggests that the level of financial sector development may influence foreign direct investment and its impact on the diffusion of technology in the host country, thereby increasing the rate of economic growth. Little attention, however, has been devoted to confirm or reject this link for China. This paper fills the gap by including measures of financial sector development in this growth regression. The Generalised Method of Moments system estimation is applied to data for 28 Chinese provinces over the period 1986-2003. We show that the interaction between foreign direct investment and indicators measuring the degree of market oriented financing enhance economic growth.

Suggested Citation

  • Christer Ljungwall & Junjie Li, 2007. "Financial Sector Development, FDI and Economic Growth in China," Finance Working Papers 22026, East Asian Bureau of Economic Research.
  • Handle: RePEc:eab:financ:22026

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    References listed on IDEAS

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    3. Simplice A. Asongu, 2015. "May the Soul of the IFS Financial System Definition RIP in Developing Countries," The International Journal of Economic Behavior - IJEB, Faculty of Business and Administration, University of Bucharest, vol. 5(1), pages 15-30, December.
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    More about this item


    financial development; foreign direct investment; economic growth; China;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development


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