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Financial System Reform and Economic Growth in a Transition Economy: The Case of China, 1978-2004

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  • Jiangang Peng
  • Nicolaas Groenewold
  • Xiangmei Fan
  • Guanzheng Li

Abstract

We examine the relationship between financial system reform and growth using data for China, which has undergone extensive financial liberalization since 1978. We construct an index of financial liberalization by combining the "Delphi method" and principal components analysis to combine eight aspects of the reform process for 1978 to 2004 and address the finance-growth nexus within a vector autoregressive model of growth, saving, and liberalization. We find robust evidence of significant positive effects of liberalization on growth in the short run and on accumulated growth in the long run but only weak effects on saving. Liberalization significantly causes both growth and saving, but there are no significant feedback effects to liberalization.

Suggested Citation

  • Jiangang Peng & Nicolaas Groenewold & Xiangmei Fan & Guanzheng Li, 2014. "Financial System Reform and Economic Growth in a Transition Economy: The Case of China, 1978-2004," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(S2), pages 5-22.
    • Handle: RePEc:mes:emfitr:v:50:y:2014:i:s2:p:5-22
    DOI: 10.2753/REE1540-496X5002S201
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    Cited by:

    1. Xuluo Yin & Xuan Xu & Qi Chen & Jiangang Peng, 2019. "The Sustainable Development of Financial Inclusion: How Can Monetary Policy and Economic Fundamental Interact with It Effectively?," Sustainability, MDPI, vol. 11(9), pages 1-14, May.
    2. Anwar, Amar & Iwasaki, Ichiro, 2022. "The Finance–Growth Nexus inAsia : A Meta-Analytic Approach," CEI Working Paper Series 2022-03, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    3. Zhang, Dayong & Cai, Jing & Dickinson, David G. & Kutan, Ali M., 2016. "Non-performing loans, moral hazard and regulation of the Chinese commercial banking system," Journal of Banking & Finance, Elsevier, vol. 63(C), pages 48-60.
    4. IWASAKI, Ichiro & ONO, Shigeki, 2023. "Economic Development and the Finance-Growth Nexus : A Meta-Analytic Approach," CEI Working Paper Series 2023-06, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    5. Samargandi, Nahla & Kutan, Ali M., 2016. "Private credit spillovers and economic growth: Evidence from BRICS countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 44(C), pages 56-84.

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