Local government debt and strongeconomicstrong growth in China - SUOMEN.pdf

BOFIT Discussion Papers 20 鈥?014 Yanrui Wu Local government debt and economic growth in China Bank of Finland, BOFIT Institute for Economies in Transition BOFIT Discussion Papers Editor-in-Chief Laura Solanko BOFIT Discussion Papers 20/20 14 2.12.20 14 Yanrui Wu: Local government debt and economic growth in China ISBN 978-952-323-004-0 ISSN 1456-5889 (online) This paper can be downloaded without charge from http://www.bof.fi/bofit. Suomen Pankki Helsinki 2014 BOFIT- Institute for Economies in Transition BOFIT Discussion Papers 20/ 20 14 Bank of Finland Contents Abstract 4 1 Introduction 5 2 Stylized facts about government debt in China 6 3 Modelling the effects of government debt on economic growth 9 4 Further analyses 15 4.1 Alternative measure of government debt 15 4.2 An extended database 17 4.3 Endogeneity 18 5 Conclusion 21 References 23 3 Yanrui Wu Local government debt and economic growth in China Yanrui Wu Local government debt and economic growth in China Abstract China鈥檚 local government debt (LGD) has recently become the focus of economic policy debates. However, information about LGD and its impact on economic growth in the Chi- nese economy is scarce. This paper attempts to present an empirical investigation of the impact of China鈥檚 LGD on economic growth. It is probably the first of its kind to focus on China and thus contributes to the general literature on the relationship between government debt and economic growth. The paper first provides an assessment of LGD in China鈥檚 re- gional economies, using recently released auditing statistics and other available secondary information. It then applies convent