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Savings, investment, and capital mobility within China

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  • Li, Cheng
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Abstract

This paper addresses the capital mobility among regions within China. Using a range of panel estimators which deals with the non-stationarity of time series components, individual heterogeneity and common unobserved factors, we show that the savings and investment (both expressed as ratios to GDP) are positively correlated for a sample of 28 Chinese provinces over the period of 1978 to 2006. According to the Feldstein-Horioka's argument (1980, Economic Journal (90), pp.314-329), such a correlation can be interpreted as evidence of low capital mobility. In addition, by means of Granger causality test, we fail to provide consistent evidence to support the hypothesis of efficient capital allocation in China. Combining the results given above, it is believed that the capital may be inefficiently retained within the provincial confines. We conjecture that the intermarriage between financial power and local authorities is primarily responsible for this worrying phenomenon.

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Bibliographic Info

Article provided by Elsevier in its journal China Economic Review.

Volume (Year): 21 (2010)
Issue (Month): 1 (March)
Pages: 14-23

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Handle: RePEc:eee:chieco:v:21:y:2010:i:1:p:14-23

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Web page: http://www.elsevier.com/locate/chieco

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Keywords: Capital mobility Market integration Panel data Capital allocation efficiency;

References

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Citations

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Cited by:
  1. Yan, Isabel K. & Chan, Kenneth S. & Dang, Vinh Q.T. & Lai, Jennifer T., 2011. "Regional Capital Mobility in China: 1978-2006," MPRA Paper 35217, University Library of Munich, Germany.
  2. Anping Chen & Nicolaas Groenewold, 2011. "Regional Equality and National Development in China: Is There a Trade‐Off?," Growth and Change, Gatton College of Business and Economics, University of Kentucky, vol. 42(4), pages 628-669, December.
  3. Lai, Jennifer T. & McNelis, Paul D. & Yan, Isabel K.M., 2013. "Regional capital mobility in China: Economic reform with limited financial integration," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 493-503.
  4. Wang, Daili, 2013. "鼓励还是抑制?初探外商直接投资与新民营企业进入
    [Foreign Direct Investment and the Entry of New Firms]
    ," MPRA Paper 50984, University Library of Munich, Germany.

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