The Financial System Capacities of India and China

48 Pages Posted: 18 Mar 2009

See all articles by Franklin Allen

Franklin Allen

Imperial College London

Rajesh Chakrabarti

O. P. Jindal Global University

Sankar De

Independent

Jun "QJ" Qian

Fanhai International School of Finance, Fudan University; University of Pennsylvania - Wharton Financial Institutions Center

Meijun Qian

Australian National University (ANU) - College of Business and Economics

Date Written: March 17, 2009

Abstract

The extraordinary performance of China and India's economies raises questions about the traditional measures of the size and depth of financial systems. While banks and markets have played a limited role in providing funds for corporate sectors and supporting economic growth in these two countries, non-state, non-listed firms, relying mostly on internal and alternative financing channels, have been growing faster than the state and listed sectors and contributing much of the growth. The alternative financing channels, excluded in the traditional measures of financial systems, operate outside legal institutions and are backed by alternative mechanisms such as reputation, relationships, and trust. We define the capacity of a financial system to be the total funding available for all corporate sectors in an economy. Our findings from China and India demonstrate that alternative finance can significantly expand the financial system capacity and promote growth at the firm level and economy wide.

Keywords: China, India, financial system capacity, banks, markets, alternative finance

JEL Classification: O5, K0, G0

Suggested Citation

Allen, Franklin and Chakrabarti, Rajesh and De, Sankar and Qian, Jun and Qian, Meijun, The Financial System Capacities of India and China (March 17, 2009). Available at SSRN: https://ssrn.com/abstract=1361708 or http://dx.doi.org/10.2139/ssrn.1361708

Franklin Allen

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Rajesh Chakrabarti (Contact Author)

O. P. Jindal Global University ( email )

Sonepat Narela road
Sonepat
Sonepat, Haryana 131001
India

Sankar De

Independent ( email )

Villa 286 bTR
Srisalam Highway
Hyderabad, Telengana
+91 7042662505 (Phone)

Jun Qian

Fanhai International School of Finance, Fudan University ( email )

Shanghai
China
86-21-63895501 (Phone)
86-21-62934572 (Fax)

HOME PAGE: http://www.fisf.fudan.edu.cn/show-65-69.html

University of Pennsylvania - Wharton Financial Institutions Center

2306 Steinberg Hall-Dietrich Hall
Philadelphia, PA 19104
United States

HOME PAGE: http://fic.wharton.upenn.edu/fic/

Meijun Qian

Australian National University (ANU) - College of Business and Economics ( email )

Canberra
Australia

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