Public Debt and Private Firm Funding. Evidence from Chinese Cities

Yi Huang, Marco Pagano and Ugo Panizza
Additional contact information
Yi Huang: The Graduate Institute, Geneva

No 1611, EIEF Working Papers Series from Einaudi Institute for Economics and Finance (EIEF)

Abstract: 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 fi rms. 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.

Pages: 67 pages
Date: 2016, Revised 2016-08
New Economics Papers: this item is included in nep-cna, nep-tra and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31)

Downloads: (external link)
http://www.eief.it/files/2016/08/wp-11-public-debt ... m-chinese-cities.pdf (application/pdf)

Related works:
Working Paper: Public Debt and Private Firm Funding: Evidence from Chinese Cities (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eie:wpaper:1611

Access Statistics for this paper

More papers in EIEF Working Papers Series from Einaudi Institute for Economics and Finance (EIEF) Contact information at EDIRC.
Bibliographic data for series maintained by Facundo Piguillem ().