Bank loan versus financial lease: how do traditional and innovative approaches within the banking sector influence economic growth? A comparative analysis between the US and China

ABSTRACT

The argument over the effects of financial structures on economic growth remains unsettled. This study, therefore, compares the dynamic correlation and lead–lag relationship between the different financial approaches within the banking sector (that is, traditional bank loans versus innovative financial leasing) and economic growth. We employ a continuous wavelet analysis using time-series data from 1982–2017 from the US (the world’s largest developed country) and China (the world’s largest developing country). The empirical results show that (1) episodes of significant correlation usually emerge during periods of reform, crisis or policy implementation; and (2) in China, traditional banking promotes economic growth in the long term, while the real economy only imputes the evolution of banks during critical economic reforms in the short term. Meanwhile, financial leasing could only promote the development of the real economy under suitable regulation; and (3) in the US, before the crises, the irrational growth of the real economy could increase bank assets, while during the crises, the traditional banking approach harms economic growth, and after the crises, financial leases play an important role in recovery. Therefore, we suggest that policymakers should establish adequate policies and regulations to solve the situation.

KEYWORDS:

• Economic growth
• continuous wavelet analysis
• bank loan
• financial lease

JEL CLASSIFICATION:

• O16
• G21
• E44
• G29

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

We gratefully acknowledge the financial support from National Social Science Foundation of China [No. 15CGL045], Soft Science Research of Jiangsu Province [BR2019041], Southeast University Social Science Key Programme [No. 2242018S10043, No. 2242018S10034] and European Commission. Responsibility for all errors is ours.