Lending for Growth? A Granger Causality Analysis of China's Finance-Growth Nexus

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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 using macroeconomic data. 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.

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Research areas and keywords

Subject classification (UKÄ) – MANDATORY

  • Economics

Keywords

  • China, Economic growth, Government-owned banks, Banking sector
Original languageEnglish
Pages (from-to)897–920
JournalEmpirical Economics
Volume51
Issue number3
Publication statusPublished - 2016 Nov
Publication categoryResearch
Peer-reviewedYes