Financial Development, Real Estate Investment and Economic Growth

ABSTRACT

In recent years, China’s economic growth has shown a continuous downward trend, but the financial industry’s added value as a percentage of GDP and the financial development level have continued to rise, and real estate investment still maintains a relatively high proportion of total fixed asset investment in society. Taking financial development as the starting point, which is measured by the balance of loans from financial institutions as a percentage of GDP, this paper selects China’s provincial panel data from 2003 to 2017, and uses the system generalized method of moments to empirically study how financial development affects real estate investment and economic growth. The results reveal that financial development pushes up the proportion of real estate investment in fixed asset investment but has a negative impact on economic growth. The increase in the proportion of real estate investment promotes economic growth and plays a masking effect on the suppression of economic growth by financial development. Further analysis shows that financial development affects the growth of the real economy by restraining the development of the secondary industry and increasing real estate investment is conducive to alleviating the restraining effect of financial development on the growth of the real economy.

KEYWORDS:

• Financial development
• real estate investment
• economic growth
• fictitious economy

JEL CLASSIFICATION:

• E22
• E44
• O11

Acknowledgements

This work has been supported by grants from the National Natural Science Foundation of China (Grant Nos. 71850014, 72004214, and 71974180). The authors would like to express cordial thanks to the referee and the editorial office for their valuable work and helpful suggestions.

Disclosure statement

No potential conflict of interest was reported by the author(s).