Financial development and economic growth: Recent evidence from China

Zhang, Jin, Wang, Lanfang, and Wang, Susheng-Financial development and economic growth: Recent evidence from China Using data from 286 Chinese cities over the period 2001-2006, this paper investigates the relationship between financial development and economic growth at the city level in China. Our results from both traditional cross-sectional regressions and first-differenced and system GMM estimators for dynamic panel data suggest that most traditional indicators of financial development are positively associated with economic growth. This result runs contrary to the existing conclusion that a state-ruled banking sector, such as that in China, hinders economic growth because of the distorting nature of the government. Since we focus on the years after China's accession to the World Trade Organization (yam in 2001 while the existing studies mainly covered the years before 2001, our finding suggests that the financial reforms that have taken place after China's accession to the WTO are in the right direction. To examine the sensitivity of our results, different conditioning information sets are experimented with. Our results are shown to be robust. Journal of Comparative Economics 40 (3) (2012) 393-412. The Research Center for Corporate Governance, Business School, Nankai University, 94 Weijin Road, Tianjin, China: Institute of Accounting and Finance, Shanghai University of Finance and Economics, 111 Guoding Road, Shanghai,China; Hong Kong University of Science and Technology, Clear Water Bay, Hong Kong. (C) 2012 Association for Comparative Economic Studies Published by Elsevier Inc. All rights reserved.