Financial Structure, Technology, and Economic Growth: A Structural Matching Perspective

Different types of capital are better suited to financing technologies with different risk profiles, and structural matching between finance and technology may critically influence economic growth. Using cross-province panel data from China, we estimated the impact of the matching relationship between regions' financial structure and technology level on economic growth. We show that: (i) the matching relationship had a statistically significant positive impact on economic growth; (ii) structural mismatching reduced economic growth in comparison with the optimal matching point; (iii) structural matching better facilitated economic growth in more developed regions; and (iv) capital accumulation and technological progress were two of the main channels through which matching influenced economic growth. We address potential endogeneity concerns and perform robustness checks, and our results remain valid. Our findings provide convincing evidence for the optimal financial structure theory and explain China's rapid growth despite its comparatively underdeveloped securities market.