Local Crowding Out in China

83 Pages Posted: 11 Aug 2016 Last revised: 5 Feb 2019

See all articles by Yi Huang

Yi Huang

Graduate Institute of International and Development Studies

Marco Pagano

University of Naples Federico II - Department of Economics and Statistics; Centre for Studies in Economics and Finance (CSEF); Einaudi Institute for Economics and Finance (EIEF); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Ugo Panizza

Graduate Institute of International and Development Studies (IHEID) - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: February 1, 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, also when cash-flow sensitivity is estimated jointly with the probability of being credit-constrained.

Keywords: investment, local public debt, crowding out, credit constraints, China

JEL Classification: E22, H63, H74, L60, O16

Suggested Citation

Huang, Yi and Pagano, Marco and Panizza, Ugo, Local Crowding Out in China (February 1, 2019). Available at SSRN: https://ssrn.com/abstract=2820682 or http://dx.doi.org/10.2139/ssrn.2820682

Yi Huang

Graduate Institute of International and Development Studies ( email )

PO Box 136
Geneva, CH-1211
Switzerland

Marco Pagano (Contact Author)

University of Naples Federico II - Department of Economics and Statistics ( email )

Via Cintia - Monte S. Angelo
Napoli, 80126
Italy
+39 081 675306 (Phone)
+39 081 7663540 (Fax)

Centre for Studies in Economics and Finance (CSEF) ( email )

Via Cintia
Complesso Monte S. Angelo
Naples, Naples 80126
Italy

Einaudi Institute for Economics and Finance (EIEF)

Via Sallustiana, 62
Rome, 00187
Italy

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http:/www.ecgi.org

Ugo Panizza

Graduate Institute of International and Development Studies (IHEID) - Department of Economics ( email )

Geneva Avenue de la Paix 11A
Geneva, 1202
Switzerland

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