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Financial Deepening, Asset Price Inflation, and Economic Convergence: Empirical Analysis Based on China’s Experience

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  • Wanjun Yao
  • Han Wu
  • Tomoko Kinugasa

Abstract

In this study, we test for convergence in financial development and economic growth in China’s financial deepening reform process by using system GMM method. The results show strong evidence of the mutually interactive and systematic relationship between financial development and economic growth, and the system is in a condition of long-run divergence. The main cause of divergence in the system changed after 2008 from financial depression to asset price expansion. This study provides evidence that the government should intensify financial deepening reforms and pay attention to financial resource flows to prevent excessive asset price expansion.

Suggested Citation

  • Wanjun Yao & Han Wu & Tomoko Kinugasa, 2015. "Financial Deepening, Asset Price Inflation, and Economic Convergence: Empirical Analysis Based on China’s Experience," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 51(S1), pages 275-284, January.
    • Handle: RePEc:mes:emfitr:v:51:y:2015:i:s1:p:s275-s284
    DOI: 10.1080/1540496X.2014.998927
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