Reserve financing and government infrastructure investment: An application to China

Yin Germaschewski

Journal of Policy Modeling, 2013, vol. 35, issue 6, 992-1013

Abstract: This paper proposes a novel financing scheme, reserve financing, for government infrastructure investment in China. A two-sector open economy model explores the consequences and policy implications of a surge in infrastructure investment financed by international reserves. The results show that reserve financing, coupled with a managed float exchange rate system, can maintain the country's fast growth rate while mitigating fiscal pressure on local governments. Productive infrastructure capital stimulates domestic demand, reducing the country's dependence on exports. To promote growth and maintain price stability, three factors are critical: return on infrastructure, swift fiscal adjustment, and rapid infrastructure financing.

Keywords: Government investment; Fiscal financing; Infrastructure; Open economy (search for similar items in EconPapers)
JEL-codes: F43 H54 O11 O23 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:35:y:2013:i:6:p:992-1013

DOI: 10.1016/j.jpolmod.2013.07.001

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