Financial Vulnerability, Capital Shocks and Economic Growth: Evidence from China (2005—2014)

  • Chunpeng Zhang Northwest University,China
  • Rong Kang Northwest University,China
  • Chen Feng Northwest University,China
Keywords: banking industry, financial vulnerability, capital shocks, economic growth, China, measurement

Abstract

Taking the leading role of the banking industry in the financial system into consideration, this paper constructed a financial vulnerability index by using the method of principal component analysis, and found China’s financial vulnerability showed a slightly upward trend in general. In order to confirm the macro factors affecting financial fragility, dynamic regression models were constructed. As a result, the authors obtained seven major macro factors. Finally, the authors determined that an overheated economy, increasing inflation, excessive growth of the country’s fiscal expenditures, and export shocks will increase financial vulnerability. However, the increasing investment in real estates and fixed assets may reduce the risk in the financial market. Therefore, China needs to adapt to the new normal economic development model, weaken government intervention in the financial markets, deepen financial reforms, and maintain steady development in the financial system.

Author Biographies

Chunpeng Zhang, Northwest University,China
Department of world economy and trade, School of Economics and Management, Northwest University
Rong Kang, Northwest University,China
Department of world economy and trade, School of Economics and Management, Northwest University
Chen Feng, Northwest University,China
Department of world economy and trade, School of Economics and Management, Northwest University

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Published
2016-11-01
Section
Articles