Researches on impacts of the banking sector on economic performance are not only provided for those developed economies such as the United Kingdom, the United States, Germany, and Japan, but also for those developing economies, such as South American, Asian and Eastern European countries. In this research, empirical approach has been adopted to explain the monetary transmission mechanism to document the characteristics of the bank lending channel in China since her implementation of the open-door policy. We study how bank loans are transmitted into changes in the economy reflected by variables such as real GDP and inflation. Furthermore, the key economic variable of aggregate investment is decomposed into domestic investment and foreign direct investment in the bank lending channel to study their relationship. Our research comprises two sets of data: first, aggregate time-series data from 1994 Quarter 1 to 2002 Quarter 3 with emphasis on recent economic performance of China and second, unbalanced annual panel data from 1978 to 2002 of provinces are categorized into different regional blocks. Inter-regional comparison is followed by the Granger causality tests. It is found that these two approaches of using the aggregate time -series and panel vector autoregressive (VAR) models give quite different results. The favored panel VAR model provides rich dynamic results which strongly support the hypothesis of multi-directional causality cycle in bank lending channel for China. Also results of causality tests are varied across different regions. The study concludes by with addressing the main issues and policy implications behind the findings.
|Date of Award
|Yue MA (Supervisor)