Does Financial Liberalization Change the Sectoral Allocation of Investments? Macro Evidence from Chinese Provinces

Qichun He and Meng Sun

Emerging Markets Finance and Trade, 2013, vol. 49, issue S2, 6-22

Abstract: Does financial liberalization affect how investment funds are allocated to competing sectors? We address this question using macro-level panel data for the period of reforms in the Chinese provinces, measuring the sectoral allocation of investments as the ratios of short-term bank loans allocated to agriculture, industry, and commerce, respectively, to total short-term loans. Both least square dummy variables (LSDV) and system estimations using the generalized method of moments (GMM) suggest that financial reform has a significant positive effect on the share of short-term loans allocated to agriculture and a significant negative effect on the share of short-term loans allocated to industry.

Keywords: efficiency; financial liberalization; investment (search for similar items in EconPapers)
Date: 2013
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