Abstract
Modern financial development theories suggest that, financial development can promote technological progress and long-term economic growth. Based on the Chinese mainland provincial panel data, the paper tests empirically the relationship between financial intermediation development and total factor productivity growth. In terms of the degree-of-freedom of bank loan decision-making, the ratio of loans of private enterprises and individuals to total loans is used to measure the development of Chinese financial intermediation. This paper finds that financial intermediation development significantly promotes total factor productivity growth when controlling for other variables, such as capital formation rate, foreign direct investment, government intervention and the urbanization level.
Highlights
Is financial development important to long-term economic growth? Before the emergence of endogenous economic growth theory, a universally recognized answer hadn’t been reached
In terms of the degree-of-freedom of bank loan decision-making, the ratio of loans of private enterprises and individuals to total loans is used to measure the development of Chinese financial intermediation
According to full-sample estimation, we find that financial intermediation development has a positive effect on total factor productivity (TFP) growth at the 5% significance level, which is consistent with the prediction of the mainstream theory of financial development
Summary
Is financial development important to long-term economic growth? Before the emergence of endogenous economic growth theory, a universally recognized answer hadn’t been reached. Is financial development important to long-term economic growth? Endogenous economic growth theory provides a good theoretical framework for analyzing the relationship between finance and growth. In this framework, financial development promotes technological progress and exerts positive influence on long-term economic growth [3]. Too many literatures study Chinese finance-growth nexus in China, but few researches focus on the impacts of financial intermediation development on technological progress. Based on the Chinese mainland provincial panel data, this paper tests empirically whether total factor productivity growth, which is used to measure technological progress, has a positive relationship with financial intermediation development.
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