Exploring the link between Financial Globalization, Financial Development, Human Development and Economic Growth in China

Over the last 30 years, China has experienced outstanding economic growth along with significant transformation in its financial system and institutional environment. It has also emerged as the primary destination for substantial foreign direct investment (FDI). Therefore, numerous studies have focused on the roles of FDI, financial development and institutional quality in stimulating the Chinese economy. However, existing literature primarily addresses the direct linear impact on economic growth, neglecting potential non-linear relationships and the roles of institutions and financial development in moderating the FDI–growth nexus. This study employs unit root and Johansen’s cointegration tests to examine the roles of FDI, institutional quality and financial development in explaining economic growth in China from 1985 to 2020. Our results show that FDI, institutions, financial development and growth are cointegrated, with non-linear effects of institutional quality and financial development on growth. Furthermore, the impact of FDI on growth decreases when financial development is high (0.627%–0.517%), but increases with improved institutional quality (0.921%–1.158%). Hence, continuous improvements in institutional quality and the financial system do not uniformly affect economic growth, but significantly influence the contribution of FDI to economic growth in China.

Publisher Summary This chapter discusses the financial development and economic growth in underdeveloped countries. An observed characteristic of the process of economic development over time, in a market-oriented economy using the price mechanism to allocate resources, is an increase in the number and variety of financial institutions and a substantial rise in the proportion not only of money but also of the total of all financial assets relative to GNP and to tangible wealth. Typical statements indicate that the financial system somehow accommodates—or, to the extent that it malfunctions, it restricts—growth of real per capita output. Such an approach places emphasis on the demand side for financial services; as the economy grows it generates additional and new demands for these services, which bring about a supply response in the growth of the financial system. In this view, the lack of financial institutions in underdeveloped countries is simply an indication of the lack of demand for their services.

ABSTRACTThis study explores the causal relationship between financial development and trade openness in China, using the research methodology namely bootstrap Granger full-sample causality test and sub-sample rolling-window estimation. The results reveal that there is a significant bidirectional relationship between financial development and trade openness in China, pointing out the existence of both ‘demand-following’ and ‘supply-leading’ hypotheses. Furthermore, their relationship fits well the fact that China has experienced economic restructuring and structural changes in the past few decades. As financial development improves trade openness robustly, the Chinese policymakers should further increase financial reform to promote trade development.

A study of the impact of military expenditures on economic growth and development examines the differences in the results of previous studies which led to contradictory conclusions. The authors find that these differences are due to sample variations, specificational choices, and the different time periods examined. The data indicate that there is no consistent, statistically significant connection between military spending and economic growth. Augmentation of the models suggests that military expenditures neither help nor hurt economic growth to any significant extent. 2 tables.

Based on a two-sector (clean energy and dirty energy) model of directed technical change, we examine the relationship between carbon emissions, clean energy consumption, and financial development in China using the ARDL method. The results show that clean energy consumption reduces carbon emissions effectively but the effect of financial development is opposite, suggesting that financial development increases carbon emissions, contradicting the findings of many existing studies. Then, we decompose financial development on carbon emissions into two different effects: substitution and income effects. The substitution effect reflects more dirty energy consumption as a result of directed technological change promoted by financial development, leading to more carbon emissions. The income effect results in a decline in carbon emissions because financial development enables firms to use more clean energy. The empirical results indicate that the net effect of financial development has caused more carbon emissions and a 1% increase in financial development results in a 0.45-0.79% increase in carbon emissions. The policy implication is also discussed.

Does the resource curse hypothesis hold in China? Evaluating the role of trade liberalisation and gross capital formation

The relationship between financial sector development and economic growth is a crucial issue for both developing and developed nations. To keep up with the changing world economy, there is need for developing countries like Kenya to develop their financial sectors. Kenya’s financial sector development has had a major role in its economic growth and this study provides a selected review of the literature and the relationship between Kenya’s financial sector and its economic growth. Numerous studies have been done on the effect of the financial sector on economic growth and the general conclusion is that the financial sector plays a central role in economic development and growth of the country. However, there is a limitation of empirical and theoretical work supporting the concept in developing countries. Most of the studies done focus on the direction of causality between finance development and economic growth and their relationship. For this reason, the study set out to analyze the influence of financial sector development on Kenya’s economic growth. The Neo-classical theory of growth was used to inform the study variables; banking sector, export market and economic growth. The study adopted an ex-post facto research design with Ordinary Least Square (OLS) method. The data used was secondary in nature obtained from the Kenya National Bureau of Statistics from the period 2010-2019. The findings revealed that there was a positive influence of financial sector development on economic growth. This implies that financial sector development promotes economic growth in Kenya. In policy terms, the findings, imply that Kenya can accelerate economic growth by improving the financial sector since financial development can be an engine of growth in this country. The study recommended that other major components of the financial sector development apart from the two studied; banking sector and export market, in this paper should be studied and put up in place well -structured policies that will support them and further develop the financial sector with the aspirations under the Kenya Vision 2030. Keywords : Financial sector development, Economic growth DOI: 10.7176/RJFA/12-2-01 Publication date: January 31 st 2021

This paper examines the asymmetric effect of financial development on CO2 emissions in China by controlling for the effects of economic growth and energy consumption. So far, no consensus has been found as regards the nature and the intensity of the relationship between CO2 emissions and financial development in China. While most previous studies found a positive effect of financial development on the environment, there have been also studies showing that financial development increases CO2 emissions in China or has no effect on it. Moreover, these studies have not accounted for a possible asymmetric impact that financial development can have on CO2 emissions in China. The empirical study in this paper is carried out with the unit root test with structural breaks and the nonlinear autoregressive distributed lag model. The obtained results show that an asymmetric effect exists. An increase in financial development helps decreasing CO2 emission. These results show the importance to support financial development in China to decrease CO2 emissions while sustaining economic growth.

Purpose ― Mishkin’s hypothesis suggests that globalization appears to be a vital factor in stimulating the development of the financial system. The study examines this hypothesis for the Turkish economy from 1970 to 2017. It focuses on the link between financial globalization and financial development by integrating economic growth, inflation, and natural resource rent as additional determinants into the financial development specification. Methods ― The Ng-Perron and Vogelsang-Perron unit root tests are used to check the stationarity of variables. The cointegration analysis is performed using the Hatemi-J and ARDL bounds testing procedures. Findings ― The main empirical results show that the series are cointegrated under structural breaks; in the long run, financial globalization and economic growth increase financial development while inflation and natural resource rent negatively affect financial development. A unidirectional causality exists from financial globalization and economic growth to financial development. At the same time, there is bidirectional causality between inflation and financial development, natural resource rent, and financial development. Implications ― The empirical findings can present important recommendations for policymakers. Originality ― Very few time-series studies include Turkey’s economy and structural breaks.

Natural resources, consumer prices and financial development in China: Measures to control carbon emissions and ecological footprints

This article aims at investigating the long-run relationship between financial development and income inequality in China using Autoregressive Distributed Lag (ARDL) model from 1978 to 2006. The results suggest that there exists a strong relationship between the Gini coefficient and financial development, and that financial development leads to a reduction in the income inequality.

Purpose - The purpose of this study was to investigate the possess and achievement of financial development in China based on financial globalization and trade friction background and to find the key to end the trade war between China and the USA. Design/methodology/approach - This study collected the financial data to do the descriptive statistics and compared the trade data between China and the USA to discuss the way easing the trade friction. Findings– First, this paper introduced financial globalization and what China should do to finish financial globalization, such as RMB globalization and investing in the international capital market. Second, we summarized the process and achievements of financial globalization in China. Third, we analyzed the risks China will face in the future. Fourth, This study pointed out that the Chinese economic structure could be the primary cause of this trade imbalance phenomenon. Research implications or Originality – Our research summarized a Chinese financial development pattern, which could be a successful financial globalization pattern to other developing economies. This research provides a way to ease the trade imbalance and friction and further influence the recent trade war. The end of the trade war would provide a more stable trade environment for Korea.

PurposeUsing annual data from 1970 to 2013 for China and India, this paper aims to examine the impact of globalization and financial development on economic growth by endogenizing capital and inflation and drawing comparisons between the two fastest growing emerging market economies.Design/methodology/approachIn the long run, co-integration test results indicate that financial development increases economic growth in China and India.FindingsThe results also reveal that globalization accelerates economic growth in India but, surprisingly, impairs economic growth in China, as it increases competition for exports. The results furthermore disclose that acceleration in capitalization and inflation, as a proxy for aggregate demand, are positively linked to economic growth in China and India.Originality/valueCausality test results indicate that both financial development and economic growth are interdependent. In contrast, causality runs from higher economic growth to increased globalization in India, while the results do not support long-term causality between globalization and economic growth in China.

On the nexus of financial development, economic growth, and energy consumption in China: New perspective from a GMM panel VAR approach

How China is mitigating resource curse through infrastructural development?