Local Crowding Out in China
104 Pages Posted: 11 Aug 2016 Last revised: 27 Oct 2019
Date Written: October 25, 2019
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.
Keywords: investment, local public debt, crowding out, credit constraints, China
JEL Classification: E22, H63, H74, L60, O16
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