On China's Domestic Capital Mobility and the Role of the Government: Empirical Evidence Over 1970-2006

This article investigates capital mobility across 29 provinces in China for the period of 1970–2006 using the Feldstein–Horioka (FH) approach and Campbell and Mankiw’s consumption‐smoothing (CS) framework. It also examines the role of the governments in driving provincial capital mobility. If the pr...

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Bibliographic Details
Published in:World economy 2011-07, Vol.34 (7), p.1216-1236
Main Authors: Chan, K. S., Dang, V. Q. T., Jiang, M., Yan, Isabel K. M.
Format: Article
Language:English
Subjects:
Capital
Capital flow
Capital mobility
Capital movement
China
China (People's Republic)
Constraints
Consumption
Correlation analysis
Economic models
Investment
Investments
Local finance
Local government
Measurement
Mobility
Peoples Republic of China
Regional economics
Regions
Risk
Saving
Savings
State Role
Studies
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Summary:This article investigates capital mobility across 29 provinces in China for the period of 1970–2006 using the Feldstein–Horioka (FH) approach and Campbell and Mankiw’s consumption‐smoothing (CS) framework. It also examines the role of the governments in driving provincial capital mobility. If the provincial government investment is not properly separated out from the private investment, the FH framework applied to the overall saving and investment (private plus public) is found to underestimate the private saving–investment correlation and hence overstates the degree of private capital mobility compared with the CS framework that focuses on the private consumption and output. Both frameworks indicate strong correlation between private saving–investment and private consumption–output, implying strong barriers in the provincial private capital flows. However, there is ample evidence that capital mobility has been rising over time, particularly after the mid 1990s. It also appears that the government facilitates capital flows through inter‐governmental transfers during the sample period. The extent of provincial capital mobility sheds light on the ability of different provinces in diversifying idiosyncratic provincial risks. The earlier findings are robust to alternative measurements of variables and model specifications.
ISSN:0378-5920
1467-9701
DOI:10.1111/j.1467-9701.2011.01374.x