DP11489 Local Crowding Out in China
| Author(s): | Yi Huang, Marco Pagano, Ugo Panizza |
| Publication Date: | September 2016 |
| Date Revised: | October 2019 |
| Keyword(s): | China, credit constraints, Crowding out, investment, Local public debt |
| JEL(s): | E22, H63, H74, L60, O16 |
| Programme Areas: | Financial Economics, International Macroeconomics and Finance, Macroeconomics and Growth |
| Link to this Page: | cepr.org/active/publications/discussion_papers/dp.php?dpno=11489 |
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.