Justin Yifu LIN, Xifang SUN
Author information
a The World Bank, Washington, DC 20433, USA
b Seoul National University, Seoul 151–747, Korea
With panel data for 28 Chinese provinces (autonomous regions, municipalities) during 1985–2002, this paper assesses the effect of banking structure on economic growth. Banking structure is defined as the relative importance of banks of different size in the banking sector. The market share of small banking institutions is taken as a proxy to measure the banking structure. In dealing with the potential endogeneity problem, this paper constructs an instrumental variable for banking structure with the information on the commercialization reform of state-owned banks initiated in 1994. The estimation results from a two-way fixed-effect model show that increases in the market share of small banking institutions enhance economic growth in contemporary China.
optimal financial structure , banking structure , economic growth
Justin Yifu LIN, Xifang SUN. Banking structure and economic growth: Evidence from China. Front. Econ. China, 2009, 4(4): 479‒504 https://doi.org/10.1007/s11459-009-0026-z