Local Crowding Out in China
107 Pages Posted: 6 Sep 2016 Last revised: 31 Oct 2019
Date Written: September 2016
In China, between 2006 and 2013, local public debt crowded out the investment of private ï¬rms by tightening their funding constraints, while leaving state-owned ï¬rms' investment unaï¬?ected. We establish this result using a purpose-built dataset for Chinese local public debt. Private ï¬rms invest less in cities with more public debt, the reduction in investment being larger for ï¬rms located farther from banks in other cities or more dependent on external funding. Moreover, in cities where public debt is high, private ï¬rms'investment is more sensitive to internal cash ï¬?ow.
Keywords: China, credit constraints, Crowding out, investment, Local public debt
JEL Classification: E22, H63, H74, L60, O16
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