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Financial intermediation and growth - Chinese style

Author

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  • Boyreau-Debray, Genevieve

Abstract

The author analyzes the relationship between growth and financial intermediation at the sub-national level within China. Does the quality of the banking sector in a province affect its rate of growth? Do state and non-state banking sectors perform differently? Does the structure of the local banking sector affect the rate of provincial economic growth? To answer these questions, the author first uses evidence on the fragmentation of regional capital markets to justify the existence of local credit channels. Second, using a dataset of 26 provinces between 1990 and 1999, she defines and introduces indicators of local banking development into the traditional growth regression framework using the GMM-system estimator. The results suggest that credit extended by the banking sector at the state level has a negative impact on provincial economic growth. This negative effect appears to be attributable to the burden of supporting the state-owned corporate sector rather than to the poor performance of state-owned banks. Moreover, provinces with more diversified banking sectors appear to grow faster.

Suggested Citation

  • Boyreau-Debray, Genevieve, 2003. "Financial intermediation and growth - Chinese style," Policy Research Working Paper Series 3027, The World Bank.
  • Handle: RePEc:wbk:wbrwps:3027
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Maswana, Jean-Claude, 2006. "An empirical investigation around the finance-growth puzzle in China with a particular focus on causality and efficiency considerations," MPRA Paper 3946, University Library of Munich, Germany, revised Apr 2006.
    2. Guariglia, Alessandra & Poncet, Sandra, 2008. "Could financial distortions be no impediment to economic growth after all? Evidence from China," Journal of Comparative Economics, Elsevier, vol. 36(4), pages 633-657, December.
    3. Meghana Ayyagari & Asli Demirgüç-Kunt & Vojislav Maksimovic, 2010. "Formal versus Informal Finance: Evidence from China," Review of Financial Studies, Society for Financial Studies, vol. 23(8), pages 3048-3097, August.
    4. Söderlund, Bengt & Gustavsson Tingvall, Patrik, 2014. "Capital Freedom, Financial Development and Provincial Economic Growth in China," Ratio Working Papers 234, The Ratio Institute.
    5. Mehrotra, Aaron & Peltonen, Tuomas & Santos Rivera, Alvaro, 2010. "Modelling inflation in China--A regional perspective," China Economic Review, Elsevier, vol. 21(2), pages 237-255, June.
    6. Hashiguchi, Yoshihiro & Chen, Kuang-hui, 2010. "Has China's Interregional Capital Mobility Been Low? A Spatial Econometric Estimation of the Feldstein-Horioka Equation," MPRA Paper 24595, University Library of Munich, Germany.
    7. Cull, Robert & Li, Wei & Sun, Bo & Xu, Lixin Colin, 2015. "Government connections and financial constraints: Evidence from a large representative sample of Chinese firms," Journal of Corporate Finance, Elsevier, vol. 32(C), pages 271-294.
    8. Jarreau, Joachim & Poncet, Sandra, 2012. "Export sophistication and economic growth: Evidence from China," Journal of Development Economics, Elsevier, vol. 97(2), pages 281-292.
    9. repec:bla:worlde:v:40:y:2017:i:4:p:764-787 is not listed on IDEAS
    10. Guariglia, Alessandra & Liu, Xiaoxuan & Song, Lina, 2011. "Internal finance and growth: Microeconometric evidence on Chinese firms," Journal of Development Economics, Elsevier, vol. 96(1), pages 79-94, September.
    11. Xiaoqiang Cheng & Hans Degryse, 2010. "The Impact of Bank and Non-Bank Financial Institutions on Local Economic Growth in China," Journal of Financial Services Research, Springer;Western Finance Association, vol. 37(2), pages 179-199, June.
    12. Hasan, Iftekhar & Wachtel, Paul & Zhou, Mingming, 2009. "Institutional development, financial deepening and economic growth: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 33(1), pages 157-170, January.
    13. Hao, Chen, 2006. "Development of financial intermediation and economic growth: The Chinese experience," China Economic Review, Elsevier, vol. 17(4), pages 347-362.
    14. Zhang, Chengsi & Zhu, Yueteng & Lu, Zhe, 2015. "Trade openness, financial openness, and financial development in China," Journal of International Money and Finance, Elsevier, vol. 59(C), pages 287-309.
    15. Liang, Zhicheng, 2006. "Financial Development, Growth, and Regional Disparity in Post-Reform China," WIDER Working Paper Series 090, World Institute for Development Economic Research (UNU-WIDER).
    16. Lin, Justin Y. & Sun, Xifang & Wu, Harry X., 2015. "Banking structure and industrial growth: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 58(C), pages 131-143.
    17. Guariglia, Alessandra & Liu, Pei, 2014. "To what extent do financing constraints affect Chinese firms' innovation activities?," International Review of Financial Analysis, Elsevier, vol. 36(C), pages 223-240.
    18. Zhang, Jin & Wang, Lanfang & Wang, Susheng, 2012. "Financial development and economic growth: Recent evidence from China," Journal of Comparative Economics, Elsevier, vol. 40(3), pages 393-412.
    19. Dic Lo & Guicai Li & Yingquan Jiang, 2011. "Financial governance and economic development: making sense of the Chinese experience," PSL Quarterly Review, Economia civile, vol. 64(258), pages 267-286.
    20. Ying Xu, 2012. "How does financial system efficiency affect the growth impact of FDI in China?: Evidence from provincial data 1999-2006," China Finance Review International, Emerald Group Publishing, vol. 2(2), pages 406-428, August.
    21. Bayraktar, Nihal & Yan Wang, 2004. "Foreign bank entry, performance of domestic banks, and sequence of financial liberalization," Policy Research Working Paper Series 3416, The World Bank.
    22. Samargandi, Nahla & Kutan, Ali M., 2016. "Private credit spillovers and economic growth: Evidence from BRICS countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 44(C), pages 56-84.
    23. repec:eee:jimfin:v:81:y:2018:i:c:p:88-115 is not listed on IDEAS
    24. Patrick Honohan, 2004. "Financial development, growth, and poverty: how close are the links?," Policy Research Working Paper Series 3203, The World Bank.
    25. Chen, K.C. & Wu, Lifan & Wen, Jian, 2013. "The relationship between finance and growth in China," Global Finance Journal, Elsevier, vol. 24(1), pages 1-12.

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