Financial Intermediation and Growth: Chinese Style
60 Pages Posted: 20 Apr 2016
Date Written: April 15, 2003
Boyreau-Debray analyzes the relationship between growth and financial intermediation at the subnational level within China. Does the quality of the banking sector in a province affect its rate of growth? Do state and nonstate banking sectors perform differently? Does the structure of the local banking sector affect the rate of provincial economic growth? To answer these questions, the author first uses evidence on the fragmentation of regional capital markets to justify the existence of local credit channels. Second, using a dataset of 26 provinces between 1990 and 1999, she defines and introduces indicators of local banking development into the traditional growth regression framework using the GMM-system estimator. The results suggest that credit extended by the banking sector at the state level has a negative impact on provincial economic growth. This negative effect appears to be attributable to the burden of supporting the state-owned corporate sector rather than to the poor performance of state-owned banks. Moreover, provinces with more diversified banking sectors appear to grow faster.
This paper - a product of Investment Climate, Development Research Group - is part of a larger effort in the group to understand China's economic and financial development.
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