Optimal Financial Condition and Economic Development:Empirical Evidence from Cross Country Data and Application in China
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| Title | Optimal Financial Condition and Economic Development:Empirical Evidence from Cross Country Data and Application in China
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| Author | Jingwen Yu |
| Organization | School of Economics, Fudan University |
| Email | yujingwenpku@gmail.com |
| Key Words | Financial Repression; Financial Liberalization; Optimal Financial Condition; Quantile Regression |
| Abstract | Financial liberalization has heterogeneous effects on economic development. On the one hand, financial liberalization is helpful for the economic development according to the financial deepening theory. On the other hand, financial liberalization raise the fragility of the economy which will lead to the financial crisis. The optimal financial condition hypothesis is proposed to explain this heterogeneity of financial liberalization. The impact of financial liberalization depends on the optimal financial condition of the country. The deviation of the actual financial liberalization to the optimal financial condition has negative influence on the economic development. This hypothesis is verified by the evidence from 63 countries data from 1981 to 2005. Furthermore, the Chinese financial reform is investigated based on this hypothesis. The financial repression in China has two impacts. Firstly, the negative influence of the deviation to economy become larger as economy grows. Secondly, the optimal financial repression steps into a downtrend, which implies the deviation become greater. There are two-fold economic costs of financial repression policies. |
| Serial Number | WP519 |
| Time | 2013-10-15 |
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