Export Expansion, Demand for External Finance, and Regional Financial Development: Evidence from China
43 Pages Posted: 1 May 2024
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
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