Scandinavian Working Papers in Economics

Knut Wicksell Working Paper Series,
Lund University, Knut Wicksell Centre for Financial Studies

No 2014/6: Lending for Growth? A Granger Causality Analysis of China's Finance-Growth Nexus

Fredrik N.G. Andersson , Katarzyna Burzynska () and Sonja Opper

Abstract: China’s banking sector is dominated by four distinct organizational forms: policy banks (PBs), state-owned commercial banks (SOCBs), joint stock commercial banks (JSCBs), and rural credit cooperatives (RCCs). Economic analyses have especially focused on the development of bank efficiency and profitability over time. The equally important question - which of China’s banking institutions promote economic growth - has not been explored. Our study uses a novel data set covering the period 1997 to 2008 and employ Granger causality tests to estimate the finance-growth nexus of each of these bank types. Our results show that SOCBs and RCCs do not Granger-cause GDP growth and that SOCBs even have a negative effect on manufacturing growth. By contrast, PBs and JSCBs promote economic growth.

Keywords: China; Banking sector; Economic growth; Government-owned banks

JEL-codes: E44; F43; G21; O16

53 pages, September 30, 2014

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