REVISIT FINANCIAL DEVELOPMENT, TRADE OPENNESS AND ECONOMIC GROWTH NEXUS IN CHINA USING A NEW DEVELOPED BOOTSTRAP ARDL TEST

We revisit the causal links among financial development, trade openness and economic growth in China using a newly developed Bootstrap ARDL test over the period of 1978-2015. Empirical results indicate no long-run relationship among these three variables and Granger causality test based on ARDL model indicates a feedback between trade openness and economic growth and between trade openness and financial development and a one-way Granger causality running from financial development supporting supply-leading hypothesis. By looking at the sign of coefficients of the independent variable that we find both financial development and trade openness promote economic growth and economic growth further reduce trade openness. These empirical results have important policy implications for the government conducting both financial development and trade openness strategies to promote economic growth in China and financial development strategy is the most important one. Apparently our results support the supply-leading hypothesis in China.