Stock Markets, Financial Depth, and Economic Growth in China: Evidence from ARDL Model

The relationship between financial development and economic growth in China is controversial. From this perspective, this article aims to identify this relationship using both capital market and banking intermediation indicators, which were rarely considered in the previous literature. An autoregres...

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Bibliographic Details
Published in:China finance and economic review 2024-03, Vol.13 (1), p.88-111
Main Authors: Bouattour, Afef, Kalai, Maha, Helali, Kamel
Format: Article
Language:English
Subjects:
ARDL
Banking industry
Capital markets
Capitalization
China
Cointegration analysis
Economic growth
financial depth
Financial institutions
Growth models
Money markets
Securities markets
Stock exchanges
stock markets
Time series
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Summary:The relationship between financial development and economic growth in China is controversial. From this perspective, this article aims to identify this relationship using both capital market and banking intermediation indicators, which were rarely considered in the previous literature. An autoregressive model with staggered lags (ARDL) examines the long-run cointegration relationship between 1980 and 2020. The results suggest that the contribution of different subsectors of the Chinese financial system to economic growth differs. The development of the money market has a negative impact, whereas market capitalization has a positive impact on economic growth in China. Regarding the contribution of the banking system to China’s economic growth, the two variables measuring the depth of financial institutions showed opposite impacts in both the short and long term. Regarding important policy implications, regulators need to ensure a pro-growth environment, effectively regulate the informal banking system, and prevent potential financial risks by revising policies.
ISSN:2095-4638
2196-5633
DOI:10.1515/cfer-2024-0005