Financial Sector Development, FDI and Economic Growth in China

Christer Ljungwall and Junjie Li
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Christer Ljungwall: China Centre for Economic Research

Finance Working Papers from East Asian Bureau of Economic Research

Abstract: 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.

Keywords: financial development; foreign direct investment; economic growth; China (search for similar items in EconPapers)
JEL-codes: F21 F36 G20 O11 (search for similar items in EconPapers)
Date: 2007-08
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Citations: View citations in EconPapers (27)

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