Scandinavian Working Papers in Economics

Ratio Working Papers,
The Ratio Institute

No 234: Capital Freedom, Financial Development and Provincial Economic Growth in China

Bengt Söderlund () and Patrik Gustavsson Tingvall ()
Additional contact information
Bengt Söderlund: The Ratio institute and Stockholm School of Economics, Postal: The Ratio Institute, P.O. Box 5095, SE-102 42 Stockholm, Sweden
Patrik Gustavsson Tingvall: Södertörn University and The Ratio Institute, Postal: The Ratio Institute, P.O. Box 5095, SE-102 42 Stockholm, Sweden

Abstract: For more than three decades, China has managed to combine rapid economic growth with a heavily regulated financial sector. The discrepancy between economic and financial development has raised the question of whether China might be an exception to the so-called finance-growth nexus. This study examines the relationship between finance and growth at the provincial level in China using a new set of measures of capital freedom and financial development. The results indicate that capital freedom and financial development are associated with both higher income and growth rates. In particular, we find that the marketization of financial institutions and strengthening of legal and government institutions have a particularly strong impact on income and growth in low-income provinces.

Keywords: Keywords: China; Economic growth; Financial institutions

JEL-codes: C23; E44; G28; O11; O43

22 pages, October 2, 2014

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