Synergistic Effects between Financial Development and Improvements in New-type Urbanization: Evidence from China

ABSTRACT

In this paper, we use the combination weight of game theory to evaluate a comprehensive index of new-type urbanization and then dynamic panel data for Chinese provinces over the period 2001 to 2016 to investigate the synergistic effects between financial development and improvement in new-type urbanization. Our results are based on system-generalized method of moments, and estimators indicate that the financial development variable measured by each dimension has different impacts on the level of new-type urbanization, respectively. The level of financial deepening measured by the total loan balance of all financial institutions divided by gross domestic product has the maximum impact on urbanization, and the financial structure has a minimal effect, confirming that a bank-dominated financial system supports improvement in new-type urbanization at the current stage. From the perspective of time periods, small- and medium-sized enterprises (SMEs) have a more obvious effect in the post-crisis period than the period 2001 to 2008. The stock market’s promotion effect on new-type urbanization also increased; thus, it is playing a greater role. These results imply that policies such as improving SMEs efficiency, optimizing the financial structure, and relaxing restrictions on private investment are likely to promote further improvement in new-type urbanization in China.

KEY WORDS:

• China
• financial development
• new-type urbanization
• system-generalized method of moments estimators

JEL:

• G18
• E44
• C01

Notes

1. Post-crisis period means post 2008.

2. The 27 provinces in our sample are Hebei, Shanxi, Inter Mongolia, Liaoning, Jilin, Heilongjiang, Jiangsu, Zhejiang, Anhui, Fujian, Jiangxi, Shandong, Henan, Hunan, Guangdong, Guangxi, Hainan, Sichuan, Guizhou, Yunnan, Shaanxi, Gansu, Qinghai, Ningxia, and Xinjiang.

3. The four municipalities in our sample are: Beijing, Tianjin, Shanghai, Chongqing. Taiwan, Hong Kong, and Macau are excluded from our simple because of omitted data and missing values.

4. As an institutional arrangement, in the household registration system (or Hukou system), rural to urban migrants are counted as urbanization population, and only migrants who obtain Hukou in urban areas are counted as part of the urban registered permanent population.

Additional information

Funding

This study was supported by the National Social Science Foundation of China [Nos. 17BJY137], the Key Project of National Social Science Foundation of China [15ZDA052].