Financial Development Following Economic Growth: The Chinese Case

Chan il Park ()
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Chan il Park: Kongju National University

East Asian Economic Review, 2003, vol. 7, issue 1, 29-63

Abstract: The purpose of this paper is to investigate the relationship between financial development and economic growth based on Chinese experiences during the period of 1979~2000. This study places more emphasis on the causality running from economic growth to financThe purpose of this paper is to investigate the relationship between financial development and economic growth based on Chinese experiences during the period of 1979~2000. This study places more emphasis on the causality running from economic growth to financial development contrary to the mainstream view, which asserts that the well-functioning financial systems exert a large positive impact on economic growth via two channels- capital accumulation and technological innovations. The reverse causality is postulated by considering two factors in developments of the country's financial system. Firstly, this paper argues that the rapid accumulation of financial assets and the remarkable expansion of the financial system during the examined period are due primarily to income rises and changes in industrial structures rather than inefficient financial reforms. Secondly, it is recognized in this study that various financial reform measures undertaken by the state since 1994 are emerged endogenously in response to Chinese financial disorders and macroeconomic imbalances built up during the 1979~93 period. This line of thinking is not following the mainstream view in which financial reforms are regarded as policy variables (or exogenous variables) in promoting economic growth. These two factors imply that the causality may run from economic growth to financial development at least in China.

Keywords: Economic Development; Financial Reform; China (search for similar items in EconPapers)
JEL-codes: E44 O16 P34 (search for similar items in EconPapers)
Date: 2003
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