Catching the political leader's signal: Economic policy uncertainty and firm investment in China

Asei Ito, Jaehwan Lim and Hongyong Zhang

China Economic Review, 2023, vol. 81, issue C

Abstract: This study uses a text dataset of the Chinese President's speeches and reports from November 2012 to December 2021 to construct an original economic policy uncertainty (EPU) index: President Xi Jinping's EPU (XiEPU). XiEPU moderately correlates with a previous study's representative EPU, showing notably different peaks. Our index spiked in April 2016 and January 2017. Using firm-level panel data from 2012 to 2019, we find that a higher value of XiEPU is associated with a lower investment rate at the quarterly level. Moreover, there are noteworthy heterogeneous effects among firms and periods. Specifically, we find a stronger effect of XiEPU on manufacturing sectors, a weaker effect on state-owned enterprises, and a stronger effect in the second term of Xi Jinping's presidential tenure after November 2017.

Keywords: Economic policy uncertainty; Firm investment; Policy maker; Xi Jinping; China (search for similar items in EconPapers)
JEL-codes: D80 E66 G18 P16 (search for similar items in EconPapers)
Date: 2023
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Working Paper: Catching the Political Leader's Signals: Economic policy uncertainty and firm investment in China (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:chieco:v:81:y:2023:i:c:s1043951x23001207

DOI: 10.1016/j.chieco.2023.102035

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