Financial Market Reform – A New Driver for China's Economic Growth?

38 Pages Posted: 24 Feb 2015 Last revised: 13 Apr 2015

See all articles by Yu-Fu Chen

Yu-Fu Chen

University of Dundee - Department of Economic Studies

Michael Funke

University of Hamburg - Department of Economics; Tallinn University of Technology (TUT)

Kunyu Tao

Central University of Finance and Economics

Date Written: February 13, 2015

Abstract

This paper analyses the financial distortions – growth nexus in China using a tractable general equilibrium modelling approach in which heterogeneous private and state-owned firms interact. The focal points of the model are financial frictions and reallocations of factors of production across firms. The calibrated version of the model elicits the important message that the adoption of a comprehensive financial market reform package abolishing financial distortions will lead to substantial output gains. Thus, structural policies leading to more efficient allocation of factors of production will remain a key policy challenge in China in the years to come.

Keywords: financial distortions, financial liberalisation, general equilibrium model, China

JEL Classification: C68, G10, G38, O10

Suggested Citation

Chen, Yu-Fu and Funke, Michael and Tao, Kunyu, Financial Market Reform – A New Driver for China's Economic Growth? (February 13, 2015). BOFIT Discussion Paper No. 5/2015, Available at SSRN: https://ssrn.com/abstract=2568624 or http://dx.doi.org/10.2139/ssrn.2568624

Yu-Fu Chen

University of Dundee - Department of Economic Studies ( email )

Dundee DD1 4HN, Scotland
United Kingdom
+44 1382 344 383 (Phone)
+44 1382 344 691 (Fax)

Michael Funke (Contact Author)

University of Hamburg - Department of Economics ( email )

Von-Melle-Park 5
room 2128 C rise
Hamburg, 20146
Germany

Tallinn University of Technology (TUT) ( email )

Ehitajate tee 5
Tallinn, 12618
Estonia

Kunyu Tao

Central University of Finance and Economics ( email )

39 South College Road
Beijing
China

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