Export Expansion, Demand for External Finance, and Regional Financial Development: Evidence from China

43 Pages Posted: 1 May 2024

See all articles by Dahai Fu

Dahai Fu

Central University of Finance and Economics (CUFE)

Yi Lu

Tsinghua University

Shufei Wang

Wuhan University

Date Written: May 1, 2024

Abstract

Why did China's export boom not boost its financial development? This paper offers a novel explanation from a regional perspective. We leverage variations in industries' external finance dependence (EFD) and decompose a region's export shock into two additive subcomponents: high-EFD and low-EFD export shocks. Our findings reveal that the export expansion of high-EFD industries significantly enhances financial development, while that of low-EFD industries diminishes it. Therefore, the lack of response in China's financial development to its export expansion stems from the prevalence of regions specializing in low-EFD industries. Our study highlights the importance of accounting for industry-specific variations in external finance dependence when analyzing the demand effects of regional export expansion.

Keywords: Regional Export Expansion, Financial Demand, Financial Development, China

JEL Classification: F10, G20, O16, O18, O19

Suggested Citation

Fu, Dahai and Lu, Yi and Wang, Shufei, Export Expansion, Demand for External Finance, and Regional Financial Development: Evidence from China (May 1, 2024). Available at SSRN: https://ssrn.com/abstract=4813650 or http://dx.doi.org/10.2139/ssrn.4813650

Dahai Fu

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Yi Lu

Tsinghua University ( email )

Beijing, 100084
China

Shufei Wang (Contact Author)

Wuhan University ( email )

Wuhan
China

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