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Financial Development and Patterns of Industrial Specialization: Evidence from China

Author

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  • Qing He
  • Chang Xue
  • Chenqi Zhu

Abstract

This article investigates the influence of financial development on patterns of industrial specialization across China’s regions. We find that industrial sectors reliant on access to external finance tend to concentrate in regions with well-developed financial markets. Both foreign direct investment (FDI) and alternative financing channels are shown to play significant roles in shaping patterns of industrial specialization in China. In contrast, proxies for formal financial markets, for example, the banking system and capital markets, have few effects on regional industrial agglomeration. This result remains robust to instrumental variable estimation, alternative model specifications, and controlling for other traditional determinants of regional specialization.

Suggested Citation

  • Qing He & Chang Xue & Chenqi Zhu, 2017. "Financial Development and Patterns of Industrial Specialization: Evidence from China," Review of Finance, European Finance Association, vol. 21(4), pages 1593-1638.
    • Handle: RePEc:oup:revfin:v:21:y:2017:i:4:p:1593-1638.
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    File URL: http://hdl.handle.net/10.1093/rof/rfw024
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    More about this item

    Keywords

    Financial development; Alternative finance; FDI; Industrial specialization;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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