Finance–growth nexus in China from an endogenous switching perspective

William W. Chow, Michael K. Fung and Man-Kwong Leung

The Journal of International Trade & Economic Development, 2018, vol. 27, issue 4, 443-462

Abstract: This study examines the relationship between financial development and economic growth across Chinese provinces with switching causality. Four states are considered: bidirectional causality (state 1); one-way causality from growth to finance (state 2); one-way causality from finance to growth (state 3); and non-causality (state 4). While state 3 dominates in developed regions, states 1 and 3 occur intermittently in other regions. This implies that the demand for financial services induced by local economic growth plays a stronger role in driving financial development in under-developed regions. Consistent with prior research, bank loans negatively affect economic growth in China.

Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:taf:jitecd:v:27:y:2018:i:4:p:443-462

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DOI: 10.1080/09638199.2017.1389976

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