Can local government implicit debt raise regional financial market spillover? Evidence from China

Xin Yang, Xuya Wang, Jie Cao, Linjia Song and Chuangxia Huang

Finance Research Letters, 2024, vol. 67, issue PA

Abstract: This paper investigates how local government implicit debt influences regional financial market spillovers. Utilizing the volatility spillover network of Diebold and Yilmaz (2014), we demonstrate that financial distress stemming from implicit debt can trigger regional financial market spillovers. Further analysis reveals that credit expansion amplifies the impact of local government implicit debt on cross-province volatility spillovers, while an improved financial situation lessens this impact. Moreover, this effect is more prominent in provinces with a higher foreign trade dependency and greater industrial structural change.

Keywords: Local government implicit debt; Volatility spillovers; Regional financial market (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:67:y:2024:i:pa:s1544612324009036

DOI: 10.1016/j.frl.2024.105873

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