Local Government Debt, Land Market Institution and Regional Economic Growth
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| Title | Local Government Debt, Land Market Institution and Regional Economic Growth
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| Author | Fan Jianyong and Mo Jiawei |
| Organization | School of Economics, Fudan University |
| Email | jyfan0393@163.com；mojiawei423@hotmail.com |
| Key Words | Local government debt; Infrastructure investment; Competition for investment |
| Abstract | The amount of Chinese local government debt has surged dramatically since the financial crisis in 2008. In this paper, we develop an “investor-local government” model to investigate the reason why it is difficult to prevent local officials from running into debt, from the perspective of debt’s double investment-inducing effect. Our model implies that local government debt, as a critical indicator of government’s ability of raising money, not only increases local industrial output directly but also attracts investment effectively by two channels, that is, by increasing investment of infrastructure and by lowering price of industrial land, which together foster local economic growth. Our empirical findings largely confirm the double investment-attracting effect of local government debt based on China’s prefectural- level panel data from 2003 to 2007. However, cities with different endowments might face different risks while pushing economic growth by raising debt: (1) cities with poor economic conditions and less endowments have comparative disadvantage in the competition for investment and their land leasing revenue in the near future might not be large enough to cover the historical debt; (2) cities with better endowments and better economic conditions, on the other hand, might suffer surging housing price due to their over-supply of industrial land and the ensuing shortage of residential land. |
| Serial Number | WP580 |
| Time | 2014-01-14 |
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