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Economic Growth and the Role of Finance in China's Post-1978 Development: Revisiting the Finance-Growth Nexus

Luo, Anwei LU (2026) EKHS11 20261
Department of Economic History
Abstract
This thesis examines why China achieved rapid economic growth despite maintaining a financial system that differed substantially from the principles of financial liberalization. It asks how China’s financial system contributed to economic growth and to what extent this relationship can be explained by the neoclassical financial liberalization perspective and the developmental state perspective. Using a functional approach and analytical narrative, the study focuses on two key functions of the financial system: savings mobilization and resource allocation. The analysis shows that China’s financial system contributed to growth not primarily through market-based allocative efficiency, but through its capacity to mobilize savings and... (More)
This thesis examines why China achieved rapid economic growth despite maintaining a financial system that differed substantially from the principles of financial liberalization. It asks how China’s financial system contributed to economic growth and to what extent this relationship can be explained by the neoclassical financial liberalization perspective and the developmental state perspective. Using a functional approach and analytical narrative, the study focuses on two key functions of the financial system: savings mobilization and resource allocation. The analysis shows that China’s financial system contributed to growth not primarily through market-based allocative efficiency, but through its capacity to mobilize savings and coordinate capital accumulation in support of industrialization and structural transformation. While state-directed finance generated distortions and efficiency costs consistent with the concerns of neoclassical theory, it also enabled the concentration and direction of financial resources toward developmental priorities. The findings therefore suggest that the developmental state perspective provides a stronger explanation of China’s experience, while the neoclassical perspective remains important for understanding the long-term costs and trade-offs of financial repression. More broadly, the Chinese case demonstrates that the contribution of finance to economic development cannot be assessed solely through market efficiency but must also be understood in relation to the institutional and historical context in which financial systems operate. (Less)
Please use this url to cite or link to this publication:
author
Luo, Anwei LU
supervisor
organization
course
EKHS11 20261
year
type
H1 - Master's Degree (One Year)
subject
keywords
China, Economic Development, Finance and Growth
language
English
id
9251622
date added to LUP
2026-09-23 10:05:50
date last changed
2026-09-23 10:05:50
@misc{9251622,
  abstract     = {{This thesis examines why China achieved rapid economic growth despite maintaining a financial system that differed substantially from the principles of financial liberalization. It asks how China’s financial system contributed to economic growth and to what extent this relationship can be explained by the neoclassical financial liberalization perspective and the developmental state perspective. Using a functional approach and analytical narrative, the study focuses on two key functions of the financial system: savings mobilization and resource allocation. The analysis shows that China’s financial system contributed to growth not primarily through market-based allocative efficiency, but through its capacity to mobilize savings and coordinate capital accumulation in support of industrialization and structural transformation. While state-directed finance generated distortions and efficiency costs consistent with the concerns of neoclassical theory, it also enabled the concentration and direction of financial resources toward developmental priorities. The findings therefore suggest that the developmental state perspective provides a stronger explanation of China’s experience, while the neoclassical perspective remains important for understanding the long-term costs and trade-offs of financial repression. More broadly, the Chinese case demonstrates that the contribution of finance to economic development cannot be assessed solely through market efficiency but must also be understood in relation to the institutional and historical context in which financial systems operate.}},
  author       = {{Luo, Anwei}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Economic Growth and the Role of Finance in China's Post-1978 Development: Revisiting the Finance-Growth Nexus}},
  year         = {{2026}},
}