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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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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 24595.

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Date of creation: Aug 2010
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Handle: RePEc:pra:mprapa:24595
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  1. Boyreau-Debray, Genevieve, 2003. "Financial intermediation and growth - Chinese style," Policy Research Working Paper Series 3027, The World Bank.
  2. 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.
  3. 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.
  4. Kanbur, Ravi & Zhang, Xiaobo, 2004. "Fifty Years of Regional Inequality in China: A Journey through Central Planning, Reform, and Openness," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  5. J. Barkley Rosser, 2009. "Introduction," Chapters, in: Handbook of Research on Complexity, chapter 1 Edward Elgar Publishing.
  6. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
  7. 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, 05.
  8. Göran Therborn & K.C. Ho, 2009. "Introduction," City, Taylor & Francis Journals, vol. 13(1), pages 53-62, March.
  9. 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.
  10. Albert Park and Kaja Sehrt & Albert Park and Kaja Sehrt, 1999. "Tests of Financial Intermediation and Banking Reform in China," William Davidson Institute Working Papers Series 270, William Davidson Institute at the University of Michigan.
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