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Financial Sector Development, FDI and Economic Growth in China

Author

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  • Christer Ljungwall

    (China Centre for Economic Research)

  • Junjie Li

Abstract

The economics-literature, drawing on endogenous growth theory, suggests that the level of financial sector development may influence foreign direct investment and its impact on the diffusion of technology in the host country, thereby increasing the rate of economic growth. Little attention, however, has been devoted to confirm or reject this link for China. This paper fills the gap by including measures of financial sector development in this growth regression. The Generalised Method of Moments system estimation is applied to data for 28 Chinese provinces over the period 1986-2003. We show that the interaction between foreign direct investment and indicators measuring the degree of market oriented financing enhance economic growth.

Suggested Citation

  • Christer Ljungwall & Junjie Li, 2007. "Financial Sector Development, FDI and Economic Growth in China," Finance Working Papers 22026, East Asian Bureau of Economic Research.
    • Handle: RePEc:eab:financ:22026
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    More about this item

    Keywords

    financial development; foreign direct investment; economic growth; China;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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