02037cas a2200241 a 4500 AALejournalIMF005031 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451869569 1018-5941 BD-DhAAL BD-DhAAL Aziz, Jahangir. Real and Financial Sector Linkages in China and India / Jahangir Aziz. Washington, D.C. : International Monetary Fund, 2008. 1 online resource (36 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students In the spirit of what is known as business cycle accounting, this paper finds that the investment wedge-the gap between household's rate of intertemporal substitution and the marginal product of capital-is large and quantitatively significant in explaining China's and India's growth. Specific financial sector policies are shown to map well the size and changes in the investment wedge. In the case of China, nonperforming loans, borrowing constraints, and uncertainty over changes in government guidance in bank lending, have implied large transfers from households to firms that have kept capital cost low and encouraged investment. In the case of India, post-1992 financial sector reforms, particularly the reduction in the funds preempted by the government from the banking system, has played an important role in reducing the cost of capital. Simulations show that for rebalancing growth in China and sustaining high investment rate in India, further financial sector reforms could turn out to be key. Mode of access: Internet IMF Working Papers; Working Paper ; No. 2008/095 Full text available on IMF http://elibrary.imf.org/view/journals/001/2008/095/001.2008.issue-095-en.xml IMF e-Library