How does Financial Development Affect Regional Economic Growth in China? A Mediating Role of Industrial Structure Optimization

Tao Zhu, Yu Liu and Jingru Chen
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Tao Zhu: School of Economics, Henan University, Kaifeng, China
Yu Liu: School of Economics, Henan University, Kaifeng, China
Jingru Chen: School of Economics, University of Bristol, Bristol, UK

Review of Economic Assessment, 2023, vol. 2, issue 2, 17-35

Abstract: Financial development and industrial structure optimization are two-wheeled engines for promoting high-quality development, but the causal identification of the two is still poorly understood. This paper addresses this research gap by comprehensively analyzing the relationship between them. Regional economic growth is a necessary condition for achieving high-quality development. Taking China as an example, this study empirically examines the role of financial development and industrial structure optimization in high-quality development using the entropy method, fixed effects, mediation effects and instrumental variable regression. The study results show that (i) financial development has actively promoted regional economic growth. (ii) The driving effect on the central and western regions is greater than that on the eastern region. (iii) There are differences in the mediating effect of industrial structure optimization and rationalization between different levels of financial development and economic growth. (iv) In addition, the mediating effect of industrial structure optimization is larger in the eastern region than in the central and western regions. (v) The mediating effect of industrial structure rationalization is not obvious in the eastern region, but has a masking effect in the central and western regions. Our findings provide new strategies for financial development and industrial structure optimization in developing countries.

Keywords: Financial development; Industrial structure; Economic growth; Entropy method; Intermediary effect (search for similar items in EconPapers)
Date: 2023
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