IDEAS home Printed from https://ideas.repec.org/a/men/journl/v2y2016i1p23-31.html
   My bibliography  Save this article

Financial Vulnerability, Capital Shocks and Economic Growth: Evidence from China (2005-2014)

Author

Listed:
  • Chun-Peng Zhang

    (School of Economics and Management, Northwest University, Xi'an, China)

  • Rong Kang

    (School of Economics and Management, Northwest University, Xi'an, China)

  • Chen Feng

    (School of Economics and Management, Northwest University, Xi'an, China)

Abstract

Taking the leading role of the banking industry in the financial system into consideration, this paper constructed a financial vulnerability index by using the method of principal component analysis, and found China's financial vulnerability showed a slightly upward trend in general. In order to confirm the macro factors affecting financial fragility, dynamic regression models were constructed. As a result, the authors obtained seven major macro factors. Finally, the authors determined that an overheated economy, increasing inflation, excessive growth of the country's fiscal expenditures, and export shocks will increase financial vulnerability. However, the increasing investment in real estates and fixed assets may reduce the risk in the financial market. Therefore, China needs to adapt to the new normal economic development model, weaken government intervention in the financial markets, deepen financial reforms, and maintain steady development in the financial system.

Suggested Citation

  • Chun-Peng Zhang & Rong Kang & Chen Feng, 2016. "Financial Vulnerability, Capital Shocks and Economic Growth: Evidence from China (2005-2014)," European Journal of Business Science and Technology, Mendel University in Brno, Faculty of Business and Economics, vol. 2(1), pages 23-31.
    • Handle: RePEc:men:journl:v:2:y:2016:i:1:p:23-31
    DOI: 10.11118/ejobsat.v2i1.56
    as

    Download full text from publisher

    File URL: http://ejobsat.cz/doi/10.11118/ejobsat.v2i1.56.html
    Download Restriction: free of charge
    File URL: http://ejobsat.cz/doi/10.11118/ejobsat.v2i1.56.pdf
    Download Restriction: free of charge
    File URL: https://libkey.io/10.11118/ejobsat.v2i1.56?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Geert Bekaert & Campbell R. Harvey, 2000. "Foreign Speculators and Emerging Equity Markets," Journal of Finance, American Finance Association, vol. 55(2), pages 565-613, April.
    2. Aaron Tornell & Frank Westermann & Lorenza Martinez, 2004. "The Positive Link Between Financial Liberalization Growth and Crises," UCLA Economics Working Papers 834, UCLA Department of Economics.
    3. Jan Willem van den End & Mostafa Tabbae, 2005. "Measuring Financial Stability: Applying the MfRisk Model to the Netherlands," DNB Working Papers 030, Netherlands Central Bank, Research Department.
    4. Tropeano, D., 2013. "Financial Fragility in the Current European crisis," CITYPERC Working Paper Series 2013-09, Department of International Politics, City University London.
    5. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 24(Win), pages 14-23.
    6. Mishkin, Frederic S, 1992. "Anatomy of a Financial Crisis," Journal of Evolutionary Economics, Springer, vol. 2(2), pages 115-130, August.
    7. Orlowski, Lucjan T., 2008. "Stages of the 2007/2008 Global Financial Crisis Is There a Wandering Asset-Price Bubble?," Economics Discussion Papers 2008-43, Kiel Institute for the World Economy (IfW Kiel).
    8. Jan Hatzius & Peter Hooper & Frederic S. Mishkin & Kermit L. Schoenholtz & Mark W. Watson, 2010. "Financial Conditions Indexes: A Fresh Look after the Financial Crisis," NBER Working Papers 16150, National Bureau of Economic Research, Inc.
    9. Mr. R. B. Johnston & Miss Liliana B Schumacher & Ms. Jingqing Chai, 2000. "Assessing Financial System Vulnerabilities," IMF Working Papers 2000/076, International Monetary Fund.
    10. Scott Brave & R. Andrew Butters, 2011. "Monitoring financial stability: a financial conditions index approach," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 35(Q I), pages 22-43.
    11. J.A. Kregel, 1997. "Margins of Safety and Weight of the Argument in Generating Financial Fragility," Journal of Economic Issues, Taylor & Francis Journals, vol. 31(2), pages 543-548, June.
    12. Fell, John & Schinasi, Garry, 2005. "Assessing Financial Stability: Exploring the Boundaries of Analysis," National Institute Economic Review, National Institute of Economic and Social Research, vol. 192, pages 102-117, April.
    13. Orlowski, Lucjan T., 2008. "Stages of the Ongoing Global Financial Crisis: Is There a Wandering Asset Bubble?," IWH Discussion Papers 11/2008, Halle Institute for Economic Research (IWH).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wagner, Helmut, 2017. "On the (non-)sustainability of China’s development strategies," CEAMeS Discussion Paper Series 6/2017, University of Hagen, Center for East Asia Macro-economic Studies (CEAMeS).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Abu S. Amin & Lucjan T. Orlowski, 2014. "Returns, Volatilities, and Correlations Across Mature, Regional, and Frontier Markets: Evidence from South Asia," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(3), pages 5-27, May.
    2. Alain Kabundi & Asithandile Mbelu, 2021. "Estimating a time-varying financial conditions index for South Africa," Empirical Economics, Springer, vol. 60(4), pages 1817-1844, April.
    3. Matthieu Darracq Paries, 2018. "Financial frictions and monetary policy conduct," Erudite Ph.D Dissertations, Erudite, number ph18-01 edited by Ferhat Mihoubi.
    4. Bumann, Silke & Hermes, Niels & Lensink, Robert, 2013. "Financial liberalization and economic growth: A meta-analysis," Journal of International Money and Finance, Elsevier, vol. 33(C), pages 255-281.
    5. Chang, Chia-Lin, 2015. "Modelling a latent daily Tourism Financial Conditions Index," International Review of Economics & Finance, Elsevier, vol. 40(C), pages 113-126.
    6. Chang, C-L. & Hsu, H-K. & McAleer, M.J., 2014. "A Tourism Financial Conditions Index," Econometric Institute Research Papers EI2014-11, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    7. Rozite, Kristiana & Bezemer, Dirk J. & Jacobs, Jan P.A.M., 2019. "Towards a financial cycle for the U.S., 1973–2014," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    8. Talani, Leila Simona, 2014. "The Political Economy of Italy in the EMU: What Went Wrong?," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 1(2), pages 133-149.
    9. Oet, Mikhail V. & Bianco, Timothy & Gramlich, Dieter & Ong, Stephen J., 2013. "SAFE: An early warning system for systemic banking risk," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4510-4533.
    10. Assaf Razin & Yona Rubinstein, 2006. "Evaluation of currency regimes: the unique role of sudden stops [‘Gravity with gravitas: A solution to the border puzzle’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 21(45), pages 120-152.
    11. Gabrisch, Hubert & Orlowski, Lucjan T., 2010. "The Extreme Risk Problem for Monetary Policies of the Euro-Candidates," IWH Discussion Papers 12/2010, Halle Institute for Economic Research (IWH).
    12. Kose, M. Ayhan & Prasad, Eswar & Rogoff, Kenneth & Wei, Shang-Jin, 2010. "Financial Globalization and Economic Policies," Handbook of Development Economics, in: Dani Rodrik & Mark Rosenzweig (ed.), Handbook of Development Economics, edition 1, volume 5, chapter 0, pages 4283-4359, Elsevier.
    13. Hoggarth, Glenn & Reis, Ricardo & Saporta, Victoria, 2002. "Costs of banking system instability: Some empirical evidence," Journal of Banking & Finance, Elsevier, vol. 26(5), pages 825-855, May.
    14. Koop, Gary & Korobilis, Dimitris, 2014. "A new index of financial conditions," European Economic Review, Elsevier, vol. 71(C), pages 101-116.
    15. Martin Dufwenberg, 2014. "Banking on Experiments?," Working Papers 534, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    16. Duo Qin & Qingchao Wang, 2016. "Predictive Macro-Impacts of PLS-based Financial Conditions Indices: An Application to the USA," Working Papers 201, Department of Economics, SOAS University of London, UK.
    17. Frederic S. Mishkin, 2007. "Is Financial Globalization Beneficial?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2-3), pages 259-294, March.
    18. Kirsten Thompson & Renee Van Eyden & Rangan Gupta, 2015. "Identifying an index of financial conditions for South Africa," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 32(2), pages 256-274, June.
    19. Jacques Le Cacheux & Antoine Magnier, 1993. "Réglementation bancaire et stabilité des systèmes financiers européens dans la perspective de l'UEM," Économie et Statistique, Programme National Persée, vol. 262(1), pages 63-74.
    20. Titelman Kardonsky, Daniel & Pérez Caldentey, Esteban & Pineda Salazar, Ramón, 2009. "The bigness of smallness: the financial crisis, its contagion mechanisms and its effects in Latin America," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.

    More about this item

    Keywords

    banking industry; financial vulnerability; capital shocks; economic growth; China; measurement;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:men:journl:v:2:y:2016:i:1:p:23-31. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ivo Andrle (email available below). General contact details of provider: https://edirc.repec.org/data/femencz.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.