Savings, investment, and capital mobility within China

Cheng Li
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Cheng Li: ERUDITE - Equipe de Recherche sur l’Utilisation des Données Individuelles en lien avec la Théorie Economique - UPEM - Université Paris-Est Marne-la-Vallée - UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12

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Abstract: This paper addresses the capital mobility among regions within China. Using a range of panel estimators which deals with the non-stationarity of time series components, individual heterogeneity and common unobserved factors. we show that the savings and investment (both expressed as ratios to GDP) are positively correlated for a sample of 28 Chinese provinces over the period of 1978 to 2006. According to the Feldstein-Horioka's argument (1980, Economic journal (90), pp.314-329), such a correlation can be interpreted as evidence of low capital mobility. In addition, by means of Granger causality test, we fail to provide consistent evidence to support the hypothesis of efficient capital allocation in China. Combining the results given above, it is believed that the capital may be inefficiently retained within the provincial confines. We conjecture that the intermarriage between financial power and local authorities is primarily responsible for this worrying phenomenon. (C) 2009 Elsevier Inc. All rights reserved.

Date: 2010
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Citations: View citations in EconPapers (27)

Published in China Economic Review, 2010, 21 (1), pp.14--23. ⟨10.1016/j.chieco.2009.08.005⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00693048

DOI: 10.1016/j.chieco.2009.08.005

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