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Institute for Economies in Transition, Bank of Finland BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland

No 12/2014:
Financial development and patterns of industrial specialization: Regional evidence from China

Qing He (), Chang Xue () and Chenqi Zhu ()

Abstract: The paper investigates the influences of financial development on patterns of industrial specialization across China’s regions. We find that industrial sectors reliant on access to external finance are found to concentrate in regions with developed financial markets. Both foreign direct investment (FDI) and informal financing channels are shown to play significant roles in shaping patterns of industrial specialization in China. In contrast, proxies for formal financial markets, e.g. the banking system and capital markets have few effects on regional industrial agglomeration. The role of financial development remains robust to instrumental variable estimation and controlling for other traditional determinants of regional specialization.

Keywords: financial development; informal finance; FDI; industrial specialization; (follow links to similar papers)

JEL-Codes: G10; G20; L60; (follow links to similar papers)

36 pages, April 11, 2014

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