Discussion Paper

No. 2017-35 | June 19, 2017
What determines firms’ credit to access in the absence of effective economic institutions: evidence from China

Abstract

The existing literature suggests that economic institutions determine the allocation of resources for economic growth. As an important counterexample, although China has one of the world’s fastest-growing economies, its legal and financial systems are underdeveloped. With evidence from China, the author confirms that government intervention positively and causally determines firms’ access to credit. He further provides evidence that government intervention enables firms’ profit through facilitating access to credit. This evidence confirms that the mechanism of government intervention allows firms’ access to credit and then enables the firms to obtain relatively large profit. Ultimately, this paper reveals that, in the absence of effective economic institutions, government intervention channels the allocation of capital.

JEL Classification:

O17, G21, G28, C51

Assessment

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Links

Cite As

Tong Fu (2017). What determines firms’ credit to access in the absence of effective economic institutions: evidence from China. Economics Discussion Papers, No 2017-35, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2017-35


Comments and Questions


Anonymous - intervention in economics at large
June 20, 2017 - 01:56

For larger rights to society welfare, the intervention is necessary. The caveat is when it is uncontrolled.