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Financial Reforms and Regional Investment Conflicts in China: A Game-Theoretic Analysis

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  • Li, Xiaoming
  • Ma, Yue

Abstract

In the transition from a command to a market economy, macroeconomic stabilization poses a grave problem facing the reform governments. A distinct feature of China's economic fluctuations in the post-1979 period has been its "soft-constraint competition." A two-region game theoretical model is developed in this paper. We find that monetary decentralization in the earlier stage of economic liberalization takes the inflation and fiscal deficits out of the control of the central monetary autorities. The prospective financial reforms will subject local governments' investment drives to the indirect regulations of monetary policy; but by strengthening monetary restraints, will result in massive borrowing from the domestic, or perhaps more likely, the intentional financial market to finance government deficits, and hence a large build-up in the stock of debts. Copyright 1996 by Kluwer Academic Publishers

Suggested Citation

  • Li, Xiaoming & Ma, Yue, 1996. "Financial Reforms and Regional Investment Conflicts in China: A Game-Theoretic Analysis," Economic Change and Restructuring, Springer, vol. 29(2), pages 117-130.
  • Handle: RePEc:kap:ecopln:v:29:y:1996:i:2:p:117-30
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    Cited by:

    1. Linna Lu & Yalin Lei, 2013. "Scale Determinants of Fiscal Investment in Geological Exploration: Evidence from China," PLOS ONE, Public Library of Science, vol. 8(10), pages 1-7, October.
    2. David N King & Yue Ma, 2000. "Local Authority Provision versus Club Provision," Environment and Planning C, , vol. 18(2), pages 207-223, April.
    3. David N King & Yue Ma, 2000. "Local Authority Provision versus Club Provision," Environment and Planning C, , vol. 18(2), pages 207-223, April.
    4. David N King & Yue Ma, 2000. "Local Authority Size in Theory and Practice," Environment and Planning C, , vol. 18(3), pages 255-270, June.
    5. Li, Xiaoming, 2000. "Reforming China's financial system and monetary policies: a sovereign remedy for locally initiated investment expansion?," Journal of Development Economics, Elsevier, vol. 62(2), pages 423-443, August.

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