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This study tests the causal relationship between financial development and economic growth in China applying the bootstrap rolling-window approach. The results show that economic growth has positive effects on financial development and that financial development exerts negative effects on economic growth. Economic growth promotes financial development, indicating the existence of a "demand-following" link. For a developing and repressed economy, it is critical to establish well-developed financial systems, particularly with sound financial intermediation and a liberalised interest rate, all of which promote financial innovation and improvement. It should be noted that a rational and steady relationship between financial development and economic growth is essential for China's economic prosperity. (CIJ/GIGA)

AbstractIn this paper, we developed the recursive unit root tests to identify the beginning and end of potential speculative bubbles in the Chinese housing price cycles during 2006–2013 for the 70 major cities of China. The method is best suited for a practical implementation with a time series and delivers a consistent date‐stamping strategy for the origination and termination of multiple bubbles. Simulations demonstrate that the test significantly improves discriminatory power and leads to distinct power gains when multiple bubbles occur. Overall, the results indicate that the speculative housing price bubbles in China are not bursting, and they indicate that the stationarity of the housing price level varies across the different city sizes. Between the cities, approximately one‐fourth of the bubbles have burst up to December 2013, while the first‐tier city bubble may not burst due to the urbanization process.