nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2008‒02‒23
two papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Testing the Finance-Growth Link: is There a Difference Between Developed and Developing Countries? By Gilles Dufrenot; Valerie Mignon; Anne Peguin-Feissolle
  2. Reconciling the Chinese Financial Development with its Economic Growth: A Discursive Essay By Maswana, Jean-Claude

  1. By: Gilles Dufrenot; Valerie Mignon; Anne Peguin-Feissolle
    Abstract: We revisit the evidence of the existence of a long-run link between financial intermediation and economic growth, by testing of cointegration between the growth rate of real GDP, control variables and three series reflecting financial intermediation. We consider a model with a factor structure that allows us to determine whether the finance-growth link is due to cross countries dependence and/or whether it characterises countries with strong heterogeneities. We employ techniques recently proposed in the panel data literature, such as PANIC analysis and cointegration in common factor models. Our results show differences between the developed and developing countries. We run a comparative regression analysis on the 1980-2006 period and find that financial intermediation is a positive determinant of growth in developed countries, while it acts negatively on the economic growth of developing countries.
    Keywords: Financial intermediation; growth; common factor; panel data; PANIC analysis
    JEL: C5 G2 O5
    Date: 2007–12
  2. By: Maswana, Jean-Claude
    Abstract: China‘s strong economic performance and its financial development outcomes are extremely difficult to reconcile with the dominant verdict that its financial system is seriously inefficient. Using an evolutionary perspective as a metaphor, this essay offered suggestions that adaptive efficiency criteria may help solve the apparent puzzle. An adaptive efficiency criterion offers conceptual as well as methodological approaches to resolving this puzzle and contradiction. The essay‘s discussions reveal that much of what critics cite as intermediation inefficiencies –non performing loans, directed credit allocation– are, in fact, a dissipative energy generating required spillovers fuelling the entire system. From this perspective, the essay argues that the relevant evaluation criterion for the Chinese financial system would be ―adaptive efficiency, instead of the conventional allocative one. This arises since China is an emerging economic system characterized primarily by state-owned financial institutions and whose goals are developmental.
    Keywords: Financial Development; China; Adaptive Efficiency; Co-evolutionary Perspective
    JEL: O1 P20 O4
    Date: 2005–03

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