Search

The rapid growth in China's domestic investment in recent decades has generated a large appetite for global goods, including from sub-Saharan Africa (SSA). This paper estimates the impact of changes in China's investment growth on SSA's exports. Although rising trading links with China have allowed African countries to diversify their export base across countries away from advanced economies, they have also led SSA countries to become more susceptible to spillovers from China. Based on panel data analysis, a one percentage point increase (decline) in China's domestic investment growth is associated with an average 0.6 percentage point increase (decline) in SSA countries' export growth. This impact is larger for resource-rich countries, especially oil exporters. These effects could be mitigated, however, to the extent that countries can reorient their exports. [ABSTRACT FROM AUTHOR]

The interconnectedness of financial deepening and income inequality has been a highly controversial discussion which has not been concluded despite many empirical and theoretical studies up to date. One of the basic building blocks for many research designs is the reliance upon the Kuznets inverted U-shaped curve which postulates that in the first phase of economic growth income inequality increases, peaks and then decreases to a tolerable level in the later phase after a certain income level had been attained. The role of financial deepening in financing economic growth is an indispensable and necessary condition enabling us to easily draw an analogy between financial deepening and income inequality in a financial version of the Kuznets curve. In spite of 30 years of economic and financial reforms in China, which represents a fairly young history of economic growth and development, there are many indicators that Chinese experience significantly deviates from the presupposed inverted U-shaped curve trajectory and its final equalizing effect. This paper relies on financial deepening data measured by monetary aggregate M2/GDP and domestic banking credit/GDP ratios in its claim that they significantly correlate with rising income inequality. The author’s intention consists not in claiming that financial deepeningper secauses income inequality, but provides a political economy analysis of the specific institutional and power configuration which leads to their positive relationship. This configuration is determined by the prevailing banking model, thehukousystem, financial repression and the decentralized authoritarian system. On the other hand, the absence of inequality-narrowing institutitons further aggravate the problem. All the aforementioned factors are geared at avoiding mechanical and spurious claims that financial deepening increases or decreases income inequality across countries. A historical institutionalism approach to explain China’s path related to the Kuznets curve prediction shows the central validity of open and inclusive institutions in generating inequality-narrowing benefits of financial deepening. [ABSTRACT FROM AUTHOR]