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A provincial view of global imbalances: regional capital flows in China


Cudré, Samuel; Hoffmann, Mathias (2014). A provincial view of global imbalances: regional capital flows in China. Working paper series / Department of Economics 162, University of Zurich.

Abstract

We model capital flows among Chinese provinces using a theory-based variance decomposition that allows us to gauge the importance of various channels of external adjustments at the regional level: variation in intertemporal prices - domestic and international interest rates and the real exchange rate - and intertemporal variation in quantities (cash flows of output, investment and government spending). We find that our simple framework can account for around 85 percent of the variation in regional capital flows over the 1985-2010 period. Our results suggest that the relative importance of private and state-owned enterprises, a province's level of integration into the world economy and its sectoral composition play an important role for external adjustment vis-à-vis the rest of China and the world. Specifically, we find strong empirical support for the view that differential access of private and state-owned enterprises to finance is a key driver of China's surpluses. We discuss implications of our results for global imbalances in capital flows.

We model capital flows among Chinese provinces using a theory-based variance decomposition that allows us to gauge the importance of various channels of external adjustments at the regional level: variation in intertemporal prices - domestic and international interest rates and the real exchange rate - and intertemporal variation in quantities (cash flows of output, investment and government spending). We find that our simple framework can account for around 85 percent of the variation in regional capital flows over the 1985-2010 period. Our results suggest that the relative importance of private and state-owned enterprises, a province's level of integration into the world economy and its sectoral composition play an important role for external adjustment vis-à-vis the rest of China and the world. Specifically, we find strong empirical support for the view that differential access of private and state-owned enterprises to finance is a key driver of China's surpluses. We discuss implications of our results for global imbalances in capital flows.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:F30, F32, F40
Uncontrolled Keywords:China, Chinese provinces, Capital flows, Current account, Global imbalances, External adjustment, Present-value models, Regional business cycles
Language:English
Date:June 2014
Deposited On:02 Jul 2014 15:45
Last Modified:05 Apr 2016 17:57
Series Name:Working paper series / Department of Economics
Number of Pages:46
ISSN:1664-7041
Official URL:http://www.econ.uzh.ch/static/wp/econwp162.pdf
Related URLs:http://www.econ.uzh.ch/static/workingpapers.php
Permanent URL: https://doi.org/10.5167/uzh-97029

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