Abstract
China is a fascinating country in Asia, the second-largest economy in the world, with incredible economic growth and development in the last two decades. In addition, China has dramatically enjoyed a disciplined and successful financial integration with the region and the world in the same period. As such, it is interesting to examine a potential link between economic growth and financial integration in this most populous country. This paper was conducted to identify whether financial integration fosters Chinese economic growth. The Auto-Regressive Distributed Lags (ARDL) model is selected, utilizing the most updated data on a globalization (or integration) index. Two distinct aspects of financial integration, the de facto (proxied for economic activities) and the de jure (proxied for the Government policies leading to integration), are considered in this paper. We apply an econometric technique, using yearly aggregated data, to examine a long-term co-integration and a causal relationship between financial integration and economic growth in China. Findings from this paper indicate a long-term co-integration between financial integration de facto and economic growth in China. The bidirectional causality between financial integration and economic growth in China is also confirmed using the Granger causality test.
Highlights
How did China become the world’s second-largest economy in the last few decades? Starting from the emergence of China, since the 1990s, the country appears to develop regardless of economic uncertainties around the globe
This paper presents a positive contribution of financial development to the Malaysian capital stock but not to the economic growth
Various studies employ the aggregate production function to examine the relationship between financial integration and economic growth with the view that financial integration is an element of the total factor of productivity (TFP)
Summary
Starting from the emergence of China, since the 1990s, the country appears to develop regardless of economic uncertainties around the globe. How did China become the world’s second-largest economy in the last few decades? With these incredible developments, economic and social issues on. China have attracted great attention from governments, scholars, practitioners, and policymakers (Girardin and Liu 2007; Okazaki and Fukumoto 2011; Xu and Gui 2019; Wang and Schuh 2000; Yin and Ma 2009). China began to increase in 1979, when the Chinese government brought the most economic reform in the country. Chinese domestic capital formation began to increase, from 2000
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