Financial Deepening, Asset Price Inflation, and Economic Convergence: Empirical Analysis Based on China's Experience

In this study, we test for convergence in financial development and economic growth in China's financial deepening reform process by using system GMM method. The results show strong evidence of the mutually interactive and systematic relationship between financial development and economic growt...

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Bibliographic Details
Published in:Emerging markets finance & trade 2015-01, Vol.51 (sup1), p.S275-S284
Main Authors: Yao, Wanjun, Wu, Han, Kinugasa, Tomoko
Format: Article
Language:English
Subjects:
convergence
Economic depression
Economic development
Economic growth
Economic reform
financial deepening
Generalized linear models
Studies
system GMM
systematic relationship
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Summary:In this study, we test for convergence in financial development and economic growth in China's financial deepening reform process by using system GMM method. The results show strong evidence of the mutually interactive and systematic relationship between financial development and economic growth, and the system is in a condition of long-run divergence. The main cause of divergence in the system changed after 2008 from financial depression to asset price expansion. This study provides evidence that the government should intensify financial deepening reforms and pay attention to financial resource flows to prevent excessive asset price expansion.
ISSN:1540-496X
1558-0938
DOI:10.1080/1540496X.2014.998927