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The Drivers of Economic Growth in China and India: Globalization or Financial Development?

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  • Shahbaz, Muhammad
  • Kandil, Magda
  • Kumar, Mantu
  • Nguyen, Duc Khuong

Abstract

Using annual data from 1970-2013 for China and India, this study examines the impact of globalization and financial development on economic growth by endogenizing capital and inflation and drawing comparisons between the two fastest growing emerging market economies. In the long-run, co-integration test results indicate that financial development increases economic growth in China and India. The results also reveal that globalization accelerates economic growth in India but, surprisingly, impairs economic growth in China as it increases competition for exports. The results furthermore disclose that acceleration in capitalization and inflation, as a proxy for aggregate demand, are positively linked to economic growth in China and India. Causality test results indicate that both financial development and economic growth are interdependent. In contrast, causality runs from higher economic growth to increased globalization in India, while the results do not support long-term causality between globalization and economic growth in China.

Suggested Citation

  • Shahbaz, Muhammad & Kandil, Magda & Kumar, Mantu & Nguyen, Duc Khuong, 2017. "The Drivers of Economic Growth in China and India: Globalization or Financial Development?," MPRA Paper 77183, University Library of Munich, Germany, revised 26 Feb 2017.
    • Handle: RePEc:pra:mprapa:77183
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    Keywords

    Economic Growth; Globalization; Financial Development; China; India;

    JEL classification:

    • A1 - General Economics and Teaching - - General Economics

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