Is Finance Good for Growth? New Evidence from China

Jingzhu Chen and Yuemei Ji ()

No 9882, CESifo Working Paper Series from CESifo

Abstract: We study the relationship between finance and growth using a sample of 275 Chinese cities during 2009-2018. We exclude a large amount of bank loans to local governments through the local government financing vehicles (LGFVs). This allows us to construct a new and better financial development index which measures the level of loans extended by banks to enterprises and households. Estimates from both GMM and Instrument Variables approaches indicate that financial development in the form of higher loan to GDP ratio leads to lower economic growth rate. We find that discrimination in bank lending, housing market bubbles and an unbalanced growth between real and financial sectors account for this negative relationship between finance and growth.

Keywords: China; financial development; economic growth; banks; city (search for similar items in EconPapers)
JEL-codes: G21 N25 O16 O18 O53 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-cna, nep-fdg and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_9882

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