A Provincial View of Global Imbalances: Regional Capital Flows in China

50 Pages Posted: 21 Apr 2016

See all articles by Samuel Cudré

Samuel Cudré

University of Zurich - Department of Economics

Mathias Hoffmann

University of Zurich - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

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Date Written: April 20, 2016

Abstract

We model capital flows among Chinese provinces using a theory-based variance decomposition that allows us to gauge the importance of various channels of external adjustments at the regional level: variation in intertemporal prices - domestic and international interest rates and the real exchange rate - and intertemporal variation in quantities (cash flows of output, investment and government spending). We find that our simple framework can account for around 85 percent of the variation in regional capital flows over the 1985-2010 period. Our results suggest that the relative importance of private and state-owned enterprises, a province’s level of integration into the world economy and its sectoral composition play an important role for external adjustment vis-a-vis the rest of China and the world. Specifically, we find strong empirical support for the view that differential access of private and state-owned enterprises to finance is a key driver of China’s surpluses. We discuss implications of our results for global imbalances in capital flows.

Keywords: China, Chinese Provinces, Capital Flows, Current Account, Global Imbalances, External Adjustment, Present-Value Models, Regional Business Cycles

JEL Classification: F30, F32, F40

Suggested Citation

Cudré, Samuel and Hoffmann, Mathias, A Provincial View of Global Imbalances: Regional Capital Flows in China (April 20, 2016). CAMA Working Paper No. 18/2016 , Available at SSRN: https://ssrn.com/abstract=2767297 or http://dx.doi.org/10.2139/ssrn.2767297

Samuel Cudré

University of Zurich - Department of Economics ( email )

Zürich
Switzerland

Mathias Hoffmann (Contact Author)

University of Zurich - Department of Economics ( email )

Zuerich, 8006
Switzerland

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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