Local Crowding Out in China
104 Pages Posted: 11 Aug 2016 Last revised: 27 Oct 2019
There are 3 versions of this paper
Local Crowding Out in China
Local Crowding Out in China
Local Crowding Out in China
Date Written: October 25, 2019
Abstract
In China, between 2006 and 2013, local public debt crowded out the investment of private firms by tightening their funding constraints, while leaving state-owned firms’ investment unaffected. We establish this result using a purpose-built dataset for Chinese local public debt. Private firms invest less in cities with more public debt, the reduction in investment being larger for firms located farther from banks in other cities or more dependent on external funding. Moreover, in cities where public debt is high, private firms’ investment is more sensitive to internal cash flow.
Keywords: investment, local public debt, crowding out, credit constraints, China
JEL Classification: E22, H63, H74, L60, O16
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