Finance Seminar（2016-21）

Topic: Public Debt and Private Firm Funding: Evidence from Chinese Cities

Speaker: Yi Huang, The Graduate Institute

Time: Wednesday, 9 November, 10:00-11:30

Place: Room 217, Guanghua Building 2

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 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 the massive public debt issuance associated with the post-2008 fiscal stimulus curtailed private investment thus weakening China's long-term growth prospects.

Introduction:

Dr.Yi Huangis an Assistant Professor of Economics, Pictet Chair in Finance and Development,The Graduate Institute.His research interests lie at the intersection of international macroeconomics and finance. He is particularly interested in investigating the determinants of financial activity and economic development in the era of globalization.

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