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Financial reforms in China and India: A comparative analysis

Author

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  • Wendy Dobson

    () (International Tax Program, Rotman School of Management, University of Toronto)

Abstract

This paper surveys financial reforms in the world’s two most populous and rapidly-growing economies. The contribution of financial systems to long term growth through the efficient mobilization and allocation of scarce capital is well documented in the literature. India’s financial system is popularly perceived to be better developed than China’s, yet they share two significant weaknesses: under-developed corporate bond markets and bank-dominated financial systems. High levels of state ownership of banks are associated with misdirected lending and high costs of intermediation. The paper examines the institutional frameworks that determine incentives in these sectors and marshals empirical evidence that historical decisions and insufficient market reform suggest performance problems persist. These problems will become more evident when growth slows; indeed a crisis may be necessary to force change since prevailing high economic growth rates in spite of the weaknesses undermine the case for deeper reforms.

Suggested Citation

  • Wendy Dobson, 2007. "Financial reforms in China and India: A comparative analysis," Working Papers Series 09, Rotman Institute for International Business, Joseph L. Rotman School of Management, University of Toronto.
  • Handle: RePEc:ttp:iibwps:09
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    File URL: http://www-2.rotman.utoronto.ca/userfiles/iib/File/IIB09.pdf
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    Citations

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    Cited by:

    1. Lindbeck, Assar, 2006. "Economic-Social Interaction during China’s Transition," Working Paper Series 680, Research Institute of Industrial Economics.
    2. Wei Li & Taye Mengistae & Lixin Colin Xu, 2011. "Diagnosing Development Bottlenecks: China and India," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 73, pages 722-752, December.

    More about this item

    Keywords

    comparative analysis; financial systems; China and India;

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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