FINANCIAL DEVELOPMENT, CAPITAL ACCUMULATION AND PRODUCTIVITY IMPROVEMENT: EVIDENCE FROM CHINA

Xun Lu, Dietrich Fausten and Russell Smyth

No 04/06, Monash Economics Working Papers from Monash University, Department of Economics

Abstract: Financial sector development may contribute to economic growth by facilitating capital accumulation and by improving productivity. This paper investigates empirically the contribution that financial development may make to these two alternative drivers of economic growth in China. Specifically, we construct a set of instruments for measuring financial development by using annual data from 1952 to 1999. Using cointegration and Granger-causality testing we examine the relationship between financial development and, respectively, capital accumulation and productivity in a time-series vector autoregression (VAR) framework. The substantive findings are that in China financial development contributes to economic growth primarily through facilitating capital accumulation, while the linkage between financial development and productivity improvement is statistically weak.

Pages: 24 pages
Date: 2006-03-02
New Economics Papers: this item is included in nep-tra
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Financial Development, Capital Accumulation and Productivity Improvement: Evidence from China (2007)
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