Local Crowding Out in China

107 Pages Posted: 6 Sep 2016 Last revised: 31 Oct 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); Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Ugo Panizza

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

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Date Written: September 2016

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 una�ected. 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 �ow.

Keywords: China, credit constraints, Crowding out, investment, Local public debt

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

Suggested Citation

Huang, Yi and Pagano, Marco and Panizza, Ugo, Local Crowding Out in China (September 2016). CEPR Discussion Paper No. DP11489. Available at SSRN: https://ssrn.com/abstract=2834826

Yi Huang (Contact Author)

Graduate Institute of International and Development Studies ( email )

PO Box 136
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Switzerland

Marco Pagano

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

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Italy
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+39 081 7663540 (Fax)

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

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Einaudi Institute for Economics and Finance (EIEF)

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Research Institute of Industrial Economics (IFN)

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Centre for Economic Policy Research (CEPR)

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European Corporate Governance Institute (ECGI)

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Ugo Panizza

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

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Geneva, 1202
Switzerland

CEPR ( email )

London
United Kingdom

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