European Journal of Business Science and Technology 2016, 2(1):23-31 | DOI: 10.11118/ejobsat.v2i1.56

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

Chun-peng Zhang1, Rong Kang1, Chen Feng1
School of Economics and Management, Northwest University, Xi'an, China

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.

Keywords: banking industry, financial vulnerability, capital shocks, economic growth, China, measurement
JEL classification: C13, E10, G21

Published: November 1, 2016  Show citation

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Zhang, C., Kang, R., & Feng, C. (2016). Financial Vulnerability, Capital Shocks and Economic Growth: Evidence from China (2005-2014). European Journal of Business Science and Technology, 2(1), 23-31. doi: 10.11118/ejobsat.v2i1.56
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