Financial Structure, Industrial Structure, and Economic Development: A New Structural Economics Perspective

22 Pages Posted: 20 Feb 2019

See all articles by Qiang Gong

Qiang Gong

Peking University

Justin Y. Lin

Peking University - China Center for Economic Research

Yilin Zhang

Southwestern University of Finance and Economics (SWUFE)

Date Written: March 2019

Abstract

We investigate the evolving relative importance of banks and equity markets during different stages of economic development. Unlike previous studies, we propose a demand‐side theory on the appropriate financial structure for an economy. We show that a bank‐based financial structure is more appropriate than a market‐based structure for developing countries, and that for developed countries, a market‐based financial structure is more appropriate than a bank‐based structure. This is due to the industrial structures of countries and the different advantages of banks and equity markets for serving the real economy. Our findings are consistent with recent empirical facts and provide new perspectives to understand the structural change of a country’s financial system.

Suggested Citation

Gong, Qiang and Lin, Justin Yifu and Zhang, Yilin, Financial Structure, Industrial Structure, and Economic Development: A New Structural Economics Perspective (March 2019). The Manchester School, Vol. 87, Issue 2, pp. 183-204, 2019, Available at SSRN: https://ssrn.com/abstract=3335350 or http://dx.doi.org/10.1111/manc.12240

Qiang Gong (Contact Author)

Peking University ( email )

No. 38 Xueyuan Road
Haidian District
Beijing, Beijing 100871
China

Justin Yifu Lin

Peking University - China Center for Economic Research ( email )

No. 38 Xueyuan Road
Haidian District
Beijing, Beijing 100871
China

Yilin Zhang

Southwestern University of Finance and Economics (SWUFE)

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

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