Regional Finance and Regional Disparities in China

Jiangang Peng, Nicolaas Groenewold, Jing He, Zhangfei Li and Yu Yi
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Jiangang Peng: College of Finance, Hunan University
Nicolaas Groenewold: UWA Business School, The University of Western Australia
Jing He: College of Finance, Hunan University
Zhangfei Li: College of Finance, Hunan University
Yu Yi: College of Finance, Hunan University

No 08-02, Economics Discussion / Working Papers from The University of Western Australia, Department of Economics

Abstract: China’s growth has been spectacularly high and persistent over the last few decades. However, there have been regular expressions of concern about the uneven distribution of the benefits across regions and, at times, it has been asserted that the regional distribution of available investment funds has played an important role – national financial institutions (mainly state-owned banks) have redirected deposits from the inland to loans to large institutions in the more prosperous coastal regions. At the same time, smaller regionally-focussed institutions are likely to improve the distribution of funds. We use a panel data set disaggregated by province for the years 1986 to 2004 to test these propositions. We employ recent panel unit roots and cointegration tests using data for state-owned bank loans as well as loans by rural credit cooperatives. We find that financial disparities are related to output disparities, that this relationship is positive, that it is stronger for rural credit cooperatives than for state-owned banks and that this relationship is causal in both the long and short runs. A reduction in financial disparities can be expected to lead a narrowing of output disparities in the short run and in the long run with the effect being larger for rural credit cooperatives than for state-owned commercial banks.

Keywords: regional disparities; panel econometrics; regional finance; China (search for similar items in EconPapers)
Pages: 38 pages
Date: 2008
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Citations: View citations in EconPapers (1)

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