An analysis on Financial Development and Growth in a Provincial China

Over the past several decades developing countries have attracted and relied on Foreign Direct Investment (FDI) to supply their economies with the investment needed to maintain high economic growth and development. In their pursuit of FDI, many countries have passed policies and regulations aimed at attracting inward FDI. As these economies have grown and investment has increased, the financial services sector in the developing world has grown to service this demand. In 2011 the World Bank and IMF's Financial Sector Assessment Program on China found that between 2005 and 2010 total bank assets had grown nearly 19%, while the total assets of non-bank financial institutions had grown 35.1% from 2007 to 2010 (World Bank and IMF Financial Sector Assessment Program, 2011, p.25 & 27). With this massive growth in the financial services sector it is important to understand the effects of financial sector development on FDI led growth in host countries. This study uses both national and provincial level data to assess the effects of financial sector development on FDI's relationship to economic growth.My research utilizes variation in financial sector development between provinces in China.