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Reserve financing and government infrastructure investment: An application to China

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  • Germaschewski, Yin

Abstract

This paper proposes a novel financing scheme, reserve financing, for government infrastructure investment in China. A two-sector open economy model explores the consequences and policy implications of a surge in infrastructure investment financed by international reserves. The results show that reserve financing, coupled with a managed float exchange rate system, can maintain the country's fast growth rate while mitigating fiscal pressure on local governments. Productive infrastructure capital stimulates domestic demand, reducing the country's dependence on exports. To promote growth and maintain price stability, three factors are critical: return on infrastructure, swift fiscal adjustment, and rapid infrastructure financing.

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  • Germaschewski, Yin, 2013. "Reserve financing and government infrastructure investment: An application to China," Journal of Policy Modeling, Elsevier, vol. 35(6), pages 992-1013.
    • Handle: RePEc:eee:jpolmo:v:35:y:2013:i:6:p:992-1013
    DOI: 10.1016/j.jpolmod.2013.07.001
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    Cited by:

    1. Germaschewski, Yin, 2020. "Stabilization policy, infrastructure investment, and welfare in a small open economy," Economic Modelling, Elsevier, vol. 84(C), pages 322-339.

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    More about this item

    Keywords

    Government investment; Fiscal financing; Infrastructure; Open economy;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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