Investment Efficiency and Financial Development in China

部分内容如下：

Investment Efficiency and Financial Development in China
Since the economic reforms began in 1978, the Chinese economy has sustained a
continuously high rate of annual growth. China’s growth pattern is similar to that of
other newly industrialized economies to some extent and is described by rapid
economic growth associated with a high level of investment in physical capital. With
the rapid expansion of investment, the question is whether China’s economic growth
is sustainable or not and whether it has been in a relatively efficient manner, e.g.
investment has been efficient in generating growth of output. In this paper, the pattern
of investment will be observed and described at both aggregate level of in China and
provincial level and investment efficiency will be examined by sectors and by regions.
Financial liberalization school argues that low interest rate ceilings and repressed
financial system may encourage investment projects with low yields and thus result in
poor investment efficiency. In contrast, by raising interest rates and reducing
government interventions in financial sector, low-yielding investments will be
eliminated and the average efficiency of investment in the economy will be increased.
Although China began its economic reforms from 1978 and the transition from a
centrally planned to a market-oriented economy has been rapid and profound, the
country’s financial system is still heavily regulated by the government. China
provides a very useful case for empirical study on the linkage of financial
development and investment efficiency. However, the role of financial development in
promoting Chinese investment efficiency has been neglected in published papers. This
paper attempts to fill this void by using provincial data during the period 1987-2004.

Another issue in this paper is to investigate the disparity of investment efficiency
across regions and to examine whether financial policies have impacts on it. Therefore,
in empirical estimation, the dataset will be divided into three groups, namely the
coastal area, the central area and the western area, and estimations are performed by
using these three sub datasets.
2
By using panel data for 30 Chinese provinces over the period of 1987-2004 and
applying GMM techniques, the empirical evidence from Chinese experiences shows
that the impacts of financial liberalization on investment efficiency are mixed by
sectors and by regions. An increase in real interest rate is related with improvement of
investment efficiency in service sector, but in industry sector this positive relationship
is not found. Also, by using the sub-sample of coastal area, there is no evidence found
to support the financial liberalization hypothesis, but in western area, except for
industry sector, higher real interest rate is positively related with investment efficiency.
Furthermore, regarding the effects of financial development, estimation results
suggest that financial development significantly promotes economic growth in coastal
regions but not in inland regions.
KeyWords: Financial development, investment efficiency, GMM