Financial Development, Capital Accumulation and Productivity Improvement: Evidence from China

Xun Lu, Dietrich Fausten and Russell Smyth

Journal of Chinese Economic and Business Studies, 2007, vol. 5, issue 3, 227-242

Abstract: Financial sector development may contribute to economic growth by facilitating capital accumulation and by improving productivity. This article investigates empirically the contribution that financial development may make to these two alternative drivers of economic growth in China using annual data for the period 1952 to 2005. Using cointegration and Granger-causality testing we examine the relationship between financial development and, respectively, capital accumulation and productivity in a time-series vector autoregression (VAR) framework. The substantive findings are that there is either bi-directional Granger causality between financial development and capital accumulation or that Granger causality runs from capital accumulation to financial development, depending on how capital accumulation and financial development are measured. The link between financial development and productivity is found to be statistically weak.

Keywords: Financial development; economic growth; China; causality (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (5)

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Working Paper: FINANCIAL DEVELOPMENT, CAPITAL ACCUMULATION AND PRODUCTIVITY IMPROVEMENT: EVIDENCE FROM CHINA (2006)
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DOI: 10.1080/14765280701656658

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