TY  - GEN
AB  - In China, local public debt issuance between 2006 and 2013 crowded out investment by private manufacturing firms by tightening their funding constraints, while it did not affect state-owned and foreign firms. Using novel data for local public debt issuance, we establish this result in three ways. First, local public debt is inversely correlated with the city-level investment ratio of domestic private manufacturing firms. Instrumental variable regressions indicate that this link is causal. Second, local public debt has a larger negative effect on investment by private firms in industries more dependent on external funding. Finally, in cities with high government debt, firm-level investment is more sensitive to internal funding, also when this sensitivity is estimated jointly with the firm's likelihood of being credit-constrained. Altogether, these results suggest that, by curtailing private investment, the massive public debt issuance associated with the post-2008 fiscal stimulus sapped long-term growth prospects in China.
AU  - Huang, Yi
AU  - Pagano, Marco
AU  - Panizza, Ugo
CY  - Geneva
DA  - 2016
DA  - 2016
DO  - 10.71609/iheid-7f0f-4q91
DO  - doi
ID  - 294613
L1  - https://repository.graduateinstitute.ch/record/294613/files/HEIDWP10-2016.pdf
L2  - https://repository.graduateinstitute.ch/record/294613/files/HEIDWP10-2016.pdf
L4  - https://repository.graduateinstitute.ch/record/294613/files/HEIDWP10-2016.pdf
LK  - https://repository.graduateinstitute.ch/record/294613/files/HEIDWP10-2016.pdf
N2  - In China, local public debt issuance between 2006 and 2013 crowded out investment by private manufacturing firms by tightening their funding constraints, while it did not affect state-owned and foreign firms. Using novel data for local public debt issuance, we establish this result in three ways. First, local public debt is inversely correlated with the city-level investment ratio of domestic private manufacturing firms. Instrumental variable regressions indicate that this link is causal. Second, local public debt has a larger negative effect on investment by private firms in industries more dependent on external funding. Finally, in cities with high government debt, firm-level investment is more sensitive to internal funding, also when this sensitivity is estimated jointly with the firm's likelihood of being credit-constrained. Altogether, these results suggest that, by curtailing private investment, the massive public debt issuance associated with the post-2008 fiscal stimulus sapped long-term growth prospects in China.
PB  - The Graduate Institute of International and Development Studies
PP  - Geneva
PY  - 2016
PY  - 2016
T1  - Public debt and private firm fundingevidence from Chinese cities
TI  - Public debt and private firm fundingevidence from Chinese cities
UR  - https://repository.graduateinstitute.ch/record/294613/files/HEIDWP10-2016.pdf
Y1  - 2016
ER  -