Literature review Coursework Example | Topics and Well Written Essays - 2750 words - 1

Literature review - Coursework Example l development to the economic growth and on the other Robinson (1952) and Lucas (1988) opined that financial development at most might qualify as a supplementary condition to economic growth and at times extremely over emphasized. Again, MacKinnon (1973) and Shaw (1973) provide theories on how distortion in financial market hinders growth. The present paper choses to conduct a comprehensive study of empirical literatures on financial development and economic growth nexus related with China; relates the findings with the present theories on the same domain and thereafter moves to reach a conclusion. Shan and Morris (2002) used panel data for 19 OECD countries along with China over the period 1985 to 1998 to test the association between financial development and growth through a VAR model. The empirical result obtained this way depicts weak association between financial development and economic growth and cast doubts on the much celebrated association between the two. The results obtained this way is in tune with the theoretical proposition of Robinson (1952) and Lucas (1988) who have mentioned that financial development can at most be a supplementary condition to economic growth and not the propelling factor for the same. Liang (2005) has developed a theoretical model at first referring that financial intermediaries can affect economic growth. Then the author has empirically tested the model using panel data for 29 Chinese provinces over the period 1990 to 2001 through applying GMM techniques of panel data analysis. The result obtained this way refers to the fact that financial development together with government deregulation in financial sector have contributed significantly and positively to Chinese economic growth. Regarding the theoretical support; the empirical results are in tune with theoretical propositions of Bagehot (1873), Schumpeter (1912), Hicks (1969) and Grossman and Miller (1988) regarding the relation between financial development and economic