An empirical investigation around the finance-growth puzzle in China with a particular focus on causality and efficiency considerations

Jean-Claude Maswana

MPRA Paper from University Library of Munich, Germany

Abstract: The paper explores a coherent perspective for understanding the multifaceted puzzle of China‘s financial development. Specifically, it tests competing finance-growth nexus hypotheses using Granger causality tests in a VECM framework for China over the period 1980–2002. The empirical results support a complex set of bidirectional causality between the financial development proxies and economic growth variables. Additionally, bidirectional causality shows the Chinese financial system to be more driven by and closely aligned with real sector activities than exposed to speculative finance. Study findings have several policy implications. Notably, the development of financial institutions should not be emphasized unilaterally. Rather, attention should be given to the complementary and coordinated development of financial reforms and changes in other areas.

Keywords: Financial Development; China; Economic Growth; Financial System Efficiency (search for similar items in EconPapers)
JEL-codes: O23 (search for similar items in EconPapers)
Date: 2006-01, Revised 2006-04
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Persistent link: http://EconPapers.repec.org/RePEc:pra:mprapa:3946

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