Volume 75, Issue 6 p. 2855-2898
ARTICLE

Local Crowding-Out in China

YI HUANGMARCO PAGANO

Corresponding Author

MARCO PAGANO

Correspondence: Marco Pagano, Department of Economics and Statistics, University of Naples Federico II, Via Cintia, 80126 Napoli, Italy; email: pagano56@gmail.com.

Search for more papers by this author
UGO PANIZZA

UGO PANIZZA

Yi Huang is with the Graduate Institute Geneva and CEPR. Marco Pagano is with the University of Naples Federico II, CSEF, EIEF, CEPR, and ECGI. Ugo Panizza is with the Graduate Institute Geneva and CEPR. We are grateful to Philippe Bacchetta; Chong-En Bai; Agnès Bénassy Quéré; Markus Brunnermeier; Lin Chen; William Cong; Fabrizio Coricelli; Sudipto Dasgupta; Peter Egger; Hanming Fang; Mariassunta Giannetti; Luigi Guiso; Harald Hau; Haizhou Huang; Zhiguo He; Mathias Hoffmann; Bengt Holmström;Tullio Jappelli; Olivier Jeanne; Alessandro Missale; Maury Obstfeld; Hélène Rey; Hong Ru; Hyun Shin; Zheng Michael Song; Paolo Surico; Dragon Tang; Jaume Ventura; Paolo Volpin; Ernst-Ludwig von Thadden; Pengfei Wang; Fabrizio Zilibotti; two anonimous referees; the Editor Wei Xiong; participants at the 2014 CEPR International Conference on Financial Market Reform and Regulation in China, the 2017 ABFER Conference in Singapore, the 9th EBC Network Conference on Financial Regulation, Bank Credit and Financial Stability, the 13th CSEF-IGIER Symposium on Economics and Institutions, and the 2017 EFA Meeting; and seminar participants at the American University, Bank of England, Bank for International Settlements, Beijing University, Chinese University of Hong Kong, Hong Kong University, International Monetary Fund, London Business School, Paris School of Economics, Princeton University, Tinbergen Institute, Tsinghua University, University of California, San Diego, University of Lausanne, University of Milan, University of Pennsylvania, and University of Zurich for insightful comments and suggestions. We thank Chong-En Bai, Haoyu Gao, Sibo Liu, Zhang Qiong, Gewei Wang, Xueting Wen, Jianwei Xu, Li Zhang, and Ye Zhang for sharing their data with us. We have read The Journal of Finance disclosure policy and have no conflicts of interest to disclose.

Search for more papers by this author
First published: 26 July 2020
Citations: 198

ABSTRACT

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

The full text of this article hosted at iucr.org is unavailable due to technical difficulties.