Government Credit, a Double-Edged Sword: Evidence from the China Development Bank
65 Pages Posted: 6 Mar 2015 Last revised: 3 Sep 2021
Date Written: August 25, 2017
Using proprietary data from the China Development Bank (CDB), this paper examines the effects of government credit on firm activities. Tracing the effects of government credit across different levels of the supply chain, I find that CDB industrial loans to state-owned enterprises (SOEs) crowd out private firms in the same industry but crowd in private firms in downstream industries. On average, a $1 increase in CDB SOE loans leads to a $0.20 decrease in private firms' assets. Moreover, CDB infrastructure loans crowd in private firms. I use exogenous timing of municipal politicians' turnover as an instrument for CDB credit flows.
Keywords: Government Credit, Crowding out, China
JEL Classification: E51, G28, G31, G38
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