Abstract
In this paper we examine the dynamic causal relationship between financial development and economic growth in China-using the newly developed ARDL-Bounds testing procedure. We use four proxies of financial development, namely M2/GDP, the ratio of private sector credit to GDP, the ratio of stock market capitalization to GDP and the ratio of bond market to GDP in order. The analysis period used annual data from 1978 to 2019. For analyzing the long term equilibrium relationship between the desired variables, we have employed Autoregressive Distributed Lag(ARDL) Bound testing approach. ARDL being a new approach is an improvement over the other traditional techniques of cointegration. Further, using the technique of bound testing approach, we have tried to estimate the impact in the short run also. The findings suggest that there exist an equilibrium relationship in long run between financial development and economic growth. The results suggested that financial development causes economic growth in the long run, however not statistical significance in the short term.
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