Can China Grow Faster? A Diagnosis of the Fragmentation of its Domestic Capital Market

46 Pages Posted: 15 Feb 2006

See all articles by Genevieve Boyreau-Debray

Genevieve Boyreau-Debray

World Bank

Shang-Jin Wei

Columbia University - Columbia Business School, Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: May 2004

Abstract

This paper examines possible segmentation of the internal capital market in China. We employ two standard tools from the international finance literature to analyze financial integration across Chinese provinces. Both tests confirm a similar (and somewhat surprising) picture: capital mobility within China is low! Furthermore, the degree of internal financial integration appears to have decreased, rather than increased, in the 1990s relative to the preceding period. Finally, we document that the government tends to reallocate capital from more productive regions to less productive ones. In this sense, a smaller role of the government in the financial sector might increase the rate of economic growth.

Keywords: Chinese economy, internal capital market, financial integration, Feldstein-Horioka, risk sharing

JEL Classification: O1

Suggested Citation

Boyreau-Debray, Genevieve and Wei, Shang-Jin, Can China Grow Faster? A Diagnosis of the Fragmentation of its Domestic Capital Market (May 2004). IMF Working Paper No. 04/76, Available at SSRN: https://ssrn.com/abstract=878899

Genevieve Boyreau-Debray (Contact Author)

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Shang-Jin Wei

Columbia University - Columbia Business School, Finance ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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