Capital Formation and Economic Growth in Western China

Changwen Zhao and Jiang Du

Chinese Economy, 2009, vol. 42, issue 6, 7-26

Abstract: Employing the Douglas production function, the effect of capital formation on economic growth is investigated empirically in western China and compared with the eastern and central regions. Regional inequality is viewed to be closely related to capital formation, such as local-fiscal expenditure, central-government investment, loans, equity financing, foreign direct investment (FDI), and private investment. The west is generally weaker in capital formation than the eastern and central regions. Findings indicate that local-fiscal capital expenditure and central-government investment have a significant positive effect on growth in the central and western regions. Loans have no significant effect on growth in any of the regions. Effects of equity financing are significant for growth in the eastern and central regions, but not in the west. The link between FDI and growth is stronger in the west than in central China, but weaker than in the east.

Date: 2009
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