Discussion Paper Details

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Title: Local Crowding Out in China

Author(s): Yi Huang, Marco Pagano and Ugo Panizza

Publication Date: September 2016

Keyword(s): China, credit constraints, Crowding out, investment and Local public debt

Programme Area(s): Financial Economics, International Macroeconomics and Finance and Macroeconomics and Growth

Abstract: In China, between 2006 and 2013, local public debt crowded out the investment of private ?rms by tightening their funding constraints, while leaving state-owned ?rms' investment una?ected. We establish this result using a purpose-built dataset for Chinese local public debt. Private ?rms invest less in cities with more public debt, the reduction in investment being larger for ?rms located farther from banks in other cities or more dependent on external funding. Moreover, in cities where public debt is high, private ?rms'investment is more sensitive to internal cash ?ow.

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Bibliographic Reference

Huang, Y, Pagano, M and Panizza, U. 2016. 'Local Crowding Out in China'. London, Centre for Economic Policy Research.