89The impact of banks and non-bank financial insti

BOFITDiscussionPapers22�2007XiaoqiangChengandHansDegryseTheimpactofbanksandnon-bankfinancialinstitutionsonlocaleconomicgrowthinChinaBankofFinland,BOFITInstituteforEconomiesinTransitionBOFITDiscussionPapersEditor-in-ChiefIikkaKorhonenBOFITDiscussionPapers22/200730.12.2007XiaoqiangChengandHansDegryse:Theimpactofbanksandnon-bankfinancialinstitutionsonlocaleconomicgrowthinChinaISBN978-952-462-891-4ISSN1456-5889(online)Thispapercanbedownloadedwithoutchargefrom://ssrn.com/abstract_id=1090155.SuomenPankkiHelsinki2007BOFIT-InstituteforEconomiesinTransitionBankofFinlandBOFITDiscussionPapers22/20073ContentsAbstract...............................................................................................................................5Tiivistelmä...........................................................................................................................61Introduction................................................................................................................72Financialdevelopmentandeconomicgrowth:Theoryandevidence..........................93FinancialreformsandfinancialdevelopmentinChina.............................................124Empiricalframeworkanddatadescription................................................................164.1Empiricalmodel.................................................................................................164.2Financialdevelopmentindicators.......................................................................174.3Datadescription.................................................................................................185ThegrowtheffectsoffinancialdevelopmentinChina..............................................195.1Intra-provinceeffects.........................................................................................195.2Robustnesstests:endogeneity............................................................................215.2.1Reversecausality..............................................................................................215.2.2Omittedvariables.............................................................................................235.3Discussion..........................................................................................................236Concludingremarks..................................................................................................24XiaoqiangChengandHansDegryseTheimpactofbanksandnon-bankfinancialinstitutionsonlocaleconomicgrowthinChina4AllopinionsexpressedarethoseoftheauthorsanddonotnecessarilyreflecttheviewsoftheBankofFinland.BOFIT-InstituteforEconomiesinTransitionBankofFinlandBOFITDiscussionPapers22/20075XiaoqiangChengandHansDegryse*Theimpactofbanksandnon-bankfinancialinstitutionsonlocaleconomicgrowthinChinaAbstractThispaperprovidesevidenceontherelationshipbetweenfinanceandhighgrowthinChina.Employingdatafor27Chineseprovincesovertheperiod1995–2003,weassesstheimpactofbanksandnon-bankfinancialinstitutionsonlocaleconomicgrowth.Wearguethatbankshavehadalargerimpactthannon-banksonlocaleconomicgrowthastheybenefitedearlierandmoreprofoundlyfromChina’sfinancialreformsthantheirnon-bankcounterparts.KeyWords:growth,financialdevelopment,Chineseprovinces,banksJEL-codes:E44,G21_______________________________________________________________________________________*Correspondingauthor.TheauthorsthankPaulDeGrauwe,BeltonM.Fleisher,JosephP.H.Fan,IikkaKorhonen,AlfredLehar,StevenOngena,GérardRoland,LijanSun,EllenVanassche,PatrickVanCayseele,VincenzoVerardi,aswellasseminarparticipantsattheLICOSMonetaryEconomicsworkshopinLeuven,theK.U.Leuven-PekingUniversityWorkshopinBeijing,theBOFITseminarattheBankofFinlandinHel-sinki,theFudanUniversityFinancialEconomicsWorkshopinShanghai,the“Debt,moneyandfinanceinintegratedglobalmarkets”ConferenceinRome,andthesecondFinancialIntermediationResearchSocietyConferenceinShanghaiforusefulcomments.FinancialassistancefromFWO-Flanders,NWO-TheNether-lands,andtheResearchCounciloftheUniversityofLeuvenisgratefullyacknowledged.HansDegryseholdstheTILEC-AFMChaironFinancialMarketRegulation.XiaoqiangChengandHansDegryseTheimpactofbanksandnon-bankfinancialinstitutionsonlocaleconomicgrowthinChina6XiaoqiangChengandHansDegryseTheimpactofbanksandnon-bankfinancialinstitutionsonlocaleconomicgrowthinChinaTiivistelmäTässäpaperissatutkitaanrahoituksenjanopeantalouskasvunyhteyttäKiinassa.Työssäselvitetäänpankkienjamuidenluottolaitostenvaikutustatalouskasvuun27kiinalaisessaprovinssissavuosina1995–2003.Tulostenmukaanpankeillaonsuurempivaikutustalous-kasvuunkuinmuillaluottolaitoksilla.PankitovathyötyneetmuitaluottolaitoksiaaiemminjaenemmänKiinanrahoitusjärjestelmänuudistuksista.Asiasanat:talouskasvu,rahoitusjärjestelmänkehitys,Kiinanprovinssit,pankitBOFIT-InstituteforEconomiesinTransitionBankofFinlandBOFITDiscussionPapers22/200771IntroductionInthelong-runningdebateontherelationshipbetweenfinanceandgrowth,anearlyli