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The drivers of economic growth in China and India: globalization or financial development?

Magda Kandil (Research and Statistics Department, Central Bank of the United Arab Emirates, Abu Dhabi, United Arab Emirates)
Muhammad Shahbaz (Department of Management Sciences, COMSATS Institute of Information Technology, Lahore, Pakistan)
Mantu Kumar Mahalik (Department of Humanities and Social Sciences (DHSS), National Institute of Technology (NIT), Odisha, India)
Duc Khuong Nguyen (IPAG Business School, Paris, France)

International Journal of Development Issues

ISSN: 1446-8956

Article publication date: 4 April 2017

Abstract

Purpose

Using annual data from 1970 to 2013 for China and India, this paper aims to examine the impact of globalization and financial development on economic growth by endogenizing capital and inflation and drawing comparisons between the two fastest growing emerging market economies.

Design/methodology/approach

In the long run, co-integration test results indicate that financial development increases economic growth in China and India.

Findings

The results also reveal that globalization accelerates economic growth in India but, surprisingly, impairs economic growth in China, as it increases competition for exports. The results furthermore disclose that acceleration in capitalization and inflation, as a proxy for aggregate demand, are positively linked to economic growth in China and India.

Originality/value

Causality test results indicate that both financial development and economic growth are interdependent. In contrast, causality runs from higher economic growth to increased globalization in India, while the results do not support long-term causality between globalization and economic growth in China.

Keywords

Citation

Kandil, M., Shahbaz, M., Mahalik, M.K. and Nguyen, D.K. (2017), "The drivers of economic growth in China and India: globalization or financial development?", International Journal of Development Issues, Vol. 16 No. 1, pp. 54-84. https://doi.org/10.1108/IJDI-06-2016-0036

Publisher

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Emerald Publishing Limited

Copyright © 2017, Emerald Publishing Limited