Law, Finance, and Economic Growth in China

60 Pages Posted: 4 Feb 2003  

Franklin Allen

Imperial College London

Jun Qian

Shanghai Advanced Institute of Finance(SAIF), Shanghai Jiao Tong University; University of Pennsylvania - Wharton Financial Institutions Center; China Academy of Financial Research (CAFR)

Meijun Qian

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

Multiple version iconThere are 2 versions of this paper

Date Written: May 7, 2004

Abstract

China is an important counterexample to the findings in the law, institutions, finance, and growth literature: neither its legal nor financial system is well developed by existing standards, yet it has one of the fastest growing economies. We examine 3 sectors of the economy: the State Sector (state-owned firms), the Listed Sector (publicly listed firms), and the Private Sector (all other firms with various types of private and local government ownership). The law-finance-growth nexus established by existing literature applies to the State and Listed Sectors: with poor legal protections of minority and outside investors, external markets are weak, and the growth of these firms is slow or negative. However, with arguably poorer applicable legal and financial mechanisms, the Private Sector grows much faster than the State and Listed Sectors, and provides most of the economy's growth. This suggests that there exist effective alternative financing channels and governance mechanisms, such as those based on reputation and relationships, to support this growth.

Keywords: Law and finance, economic growth, private sector, corporate governance, reputation and relationships

JEL Classification: O5, K0, G2

Suggested Citation

Allen, Franklin and Qian, Jun and Qian, Meijun, Law, Finance, and Economic Growth in China (May 7, 2004). U of Penn, Inst for Law & Econ Research Paper No. 03-21. Available at SSRN: https://ssrn.com/abstract=365641 or http://dx.doi.org/10.2139/ssrn.365641

Franklin Allen

Imperial College London ( email )

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

Jun Qian (Contact Author)

Shanghai Advanced Institute of Finance(SAIF), Shanghai Jiao Tong University ( email )

211 West Huaihai Road
Shanghai, 200030
China
86-21-62934520 (Phone)
86-21-62934572 (Fax)

HOME PAGE: http://www.saif.sjtu.edu.cn/en/professors/2101

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/

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

Meijun Qian

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

Canberra
Australia

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