Is there a Causal Relationship between Financial Development and Economic Growth in China? Evidence from the Bootstrap Rolling-Window Approach

This study tests the causal relationship between financial development and economic growth in China applying the bootstrap rolling-window approach. The results show that economic growth has positive effects on financial development and that financial development exerts negative effects on economic growth. Economic growth promotes financial development, indicating the existence of a “demand-following” link. For a developing and repressed economy, it is critical to establish well-developed financial systems, particularly with sound financial intermediation and a liberalised interest rate, all of which promote financial innovation and improvement. It should be noted that a rational and steady relationship between financial development and economic growth is essential for China’s economic prosperity.