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Determinants of Corporate Investment in China; Evidence From Cross-Country Firm Level Data

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  • Nan Geng
  • Papa M N'Diaye

Abstract

This paper analyzes the evolution of investment in China, its main features, and its key determinants. In recent years, manufacturing, real estate, and infrastructure have been the main drivers of investment. Investment remains largely concentrated in coastal areas, but there has been a shift to greater investments inland in recent years. The empirical analysis of the determinants of investment indicates that financial variables, such as interest rates, the exchange rate, and the depth of the domestic capital market are important determinants of corporate investment. The results suggest in particular that financial sector reform, including that which deregulates and raises real interest rates as well as appreciates the real effective exchange rate, would lower investment and help rebalance growth away from exports and investment toward private consumption.

Suggested Citation

  • Nan Geng & Papa M N'Diaye, 2012. "Determinants of Corporate Investment in China; Evidence From Cross-Country Firm Level Data," IMF Working Papers 12/80, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:12/80
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    References listed on IDEAS

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    1. Michael Leahy & Sebastian Schich & Gert Wehinger & Florian Pelgrin & Thorsteinn Thorgeirsson, 2001. "Contributions of Financial Systems to Growth in OECD Countries," OECD Economics Department Working Papers 280, OECD Publishing.
    2. Yiping Huang, 2010. "China's Great Ascendancy and structural risks: consequences of asymmetric market liberalisation," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 24(1), pages 65-85, May.
    3. Chong-En Bai & Chang-Tai Hsieh & Yingyi Qian, 2006. "The Return to Capital in China," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 37(2), pages 61-102.
    4. Francesco Caselli & James Feyrer, 2007. "The Marginal Product of Capital," The Quarterly Journal of Economics, Oxford University Press, vol. 122(2), pages 535-568.
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    Cited by:

    1. repec:eee:riibaf:v:43:y:2018:i:c:p:48-57 is not listed on IDEAS
    2. Tang, Ya & Xu, Jianguo & Zhang, Xun, 2017. "China's investment and rate of return on capital revisited," Journal of Asian Economics, Elsevier, vol. 49(C), pages 12-25.
    3. M. Albert & C. Jude & C. Rebillard, 2015. "The Long Landing Scenario: Rebalancing from Overinvestment and Excessive Credit Growth. Implications for Potential Growth in China," Working papers 572, Banque de France.

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