Does Financial Development lead Economic Growth? The case of China

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Shan, Jordan and Qi, Jianghong (2006) Does Financial Development lead Economic Growth? The case of China. Annals of Economics and Finance, 7 (1). pp. 231-250. ISSN 1529-7373


Using a Vector Autoregression (VAR) approach, we examine the impact of financial development on economic growth in China. Innovation accounting(variance decomposition and impulse response function) analysis is applied to examine interrelationships between variables in the VAR system and, therefore, differs from the more usual approach. We find that financial development comes as the second force (after the contribution from labor input) in leadingeconomic growth in China. This study has supported the view in the literature that financial development and economic growth exhibit a two-way causality and hence is against the so-called “finance-led growth” hypothesis. The study of this kind in the case of China is limited; it therefore provides an interesting advance in the literature on the finance-growth nexus.

Item type Article
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Subjects Historical > FOR Classification > 1401 Economic Theory
Historical > SEO Classification > 9101 Macroeconomics
Historical > Faculty/School/Research Centre/Department > School of Economics and Finance
Keywords ResPubID11903, financial development, economic growth, Vector Autoregression (VAR)
Citations in Scopus 63 - View on Scopus
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