The Impacts of Financial Market Access, Credit to Private Sector and Gross Domestic Product on Financial Development in China: A Vector Error Correction Model Approach
The Impacts of Financial Market Access, Credit to Private Sector and Gross Domestic Product on Financial Development in China: A Vector Error Correction Model Approach

Summary/Abstract: Chinese markets have attracted many investors around the world. However, policies designed to develop these markets and the overall economic performance in China has been mixed over the years. This study aims to evaluate the impacts of financial market access, credit to the private sector and GDP on the development of financial market in China using the Vector Error Correction Model (VECM) approach from 198A-2015A. The negative value and the statistical significance of the error correction term support the long-run cointegration results. Additionally, the residuals are stable, normally distributed and serially uncorrelated based on the robustness checks. By implication, the study concludes that, domestic credit to the private sector and real GDP have positive impacts on the development of financial market sector in China, while financial market access and total reserves have negative impact. Resultantly, China needs broad and inclusive financial reform such as credit and exchange rate policies that will operate as a free market or a mixed economic system to attract investors and provide legal and regulatory framework to evaluate the implemented policies in order to ensure confidence in the minds of both existing and prospective investors and to boost domestic and international trade to achieve sustainable development in China.

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