Financial Deregulation, Absorptive Capability, Technology Diffusion and Growth: Evidence from Chinese Panel Data

Qichun He, Meng Sun and Heng-Fu Zou ()

Journal of Applied Economics, 2013, vol. 16, issue 2, 275-301

Abstract: Technological diffusion via FDI is essential for the economic growth of backward economies. However, institutional and policy barriers may slow down technology diffusion. Using a simple theory based on Acemoglu (2009), we predict that inward FDI (pool of available world frontier technologies) and financial deregulation (enhancing absorptive capability via lowering institutional and policy barriers) have a complementary effect on economic growth. We test the predictions using panel data on Chinese provinces during the reform and opening-up period. The Chinese experience is appealing because of the symbiotic financial deregulation and inflow of FDI. We find robust evidence that there is a significant interaction effect between FDI and the level of financial deregulation that promotes economic growth. This furthers our understanding of the reform and opening-up strategy of China.

Date: 2013
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Journal Article: Financial deregulation, absorptive capability, technology diffusion and growth: Evidence from Chinese panel data (2013)
Working Paper: Financial Deregulation, Absorptive Capability, Technology Diffusion and Growth: Evidence from Chinese Panel Data (2012)
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DOI: 10.1016/S1514-0326(13)60012-4

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