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Has China's Interregional Capital Mobility Been Low? A Spatial Econometric Estimation of the Feldstein-Horioka Equation


  • Hashiguchi, Yoshihiro
  • Chen, Kuang-hui


We conducted a Feldstein-Horioka test for the degree of China's inter-provincial capital mobility each year from 1978 to 2007 using the spatial error model (SEM), a model of spatial econometrics considering spatial dependence, and a data set reflecting revision of historical national and provincial accounts after China's first economic census in 2004. We found that the likelihood ratio test rejected the null of no spatial error correlation, or the appropriateness of the standard OLS model (OLSM), for 17 out of 30 years and that the Akaike information criterion selected the SEM over the OLSM for 20 years. Our estimations demonstrate that the mobility was high until the late 80's, fell to a bottom in the mid-90's, recovered, peaked in the early 2000's, and has weakened recently, even though it has been argued that mobility has been low since 1978 reform, leaving the impression that it has consistently been low.

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  • Hashiguchi, Yoshihiro & Chen, Kuang-hui, 2010. "Has China's Interregional Capital Mobility Been Low? A Spatial Econometric Estimation of the Feldstein-Horioka Equation," MPRA Paper 24595, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:24595

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    References listed on IDEAS

    1. Boyreau-Debray, Genevieve & Wei, Shang-Jin, 2004. "Pitfalls of a State-Dominated Financial System: The Case of China," CEPR Discussion Papers 4471, C.E.P.R. Discussion Papers.
    2. Göran Therborn & K.C. Ho, 2009. "Introduction," City, Taylor & Francis Journals, vol. 13(1), pages 53-62, March.
    3. Kanbur, Ravi & Zhang, Xiaobo, 2004. "Fifty Years of Regional Inequality in China: A Journey through Central Planning, Reform, and Openness," WIDER Working Paper Series 050, World Institute for Development Economic Research (UNU-WIDER).
    4. Park, Albert & Sehrt, Kaja, 2001. "Tests of Financial Intermediation and Banking Reform in China," Journal of Comparative Economics, Elsevier, vol. 29(4), pages 608-644, December.
    5. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-329, June.
    6. Apergis, Nicholas & Tsoumas, Chris, 2009. "A survey of the Feldstein-Horioka puzzle: What has been done and where we stand," Research in Economics, Elsevier, vol. 63(2), pages 64-76, June.
    7. J. Barkley Rosser, 2009. "Introduction," Chapters,in: Handbook of Research on Complexity, chapter 1 Edward Elgar Publishing.
    8. Guonan Ma, 2008. "Recovering Financial Systems: China and Asian transition economies - Edited by Mariko Watanabe," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 22(1), pages 76-77, May.
    9. John Knight & Li Shi, 1999. "Fiscal decentralization: Incentives, redistribution and reform in China," Oxford Development Studies, Taylor & Francis Journals, vol. 27(1), pages 5-32.
    10. Boyreau-Debray, Genevieve, 2003. "Financial intermediation and growth - Chinese style," Policy Research Working Paper Series 3027, The World Bank.
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    Cited by:

    1. Wang, Shoukun, 2016. "China's interregional capital mobility: A spatial econometric estimation," China Economic Review, Elsevier, vol. 41(C), pages 114-128.

    More about this item


    fiscal and financial reform; Feldstein-Horioka paradox; spatial econometrics;

    JEL classification:

    • P21 - Economic Systems - - Socialist Systems and Transition Economies - - - Planning, Coordination, and Reform
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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